Fortnightly - regulatorhttp://www.fortnightly.com/tags/regulator
enHow to Talk to Regulatorshttp://www.fortnightly.com/fortnightly/2015/05/how-talk-regulators
<div class="field field-name-field-import-deck field-type-text-long field-label-inline clearfix"><div class="field-label">Deck:&nbsp;</div><div class="field-items"><div class="field-item even"><p>Why some proceedings blow up, while others reach consensus.</p>
</div></div></div><div class="field field-name-field-import-byline field-type-text-long field-label-inline clearfix"><div class="field-label">Byline:&nbsp;</div><div class="field-items"><div class="field-item even"><p><span style="font-size: 13.0080003738403px; line-height: 20.0063037872314px;">Herman K. Trabish</span></p>
</div></div></div><div class="field field-name-field-import-bio field-type-text-long field-label-inline clearfix"><div class="field-label">Author Bio:&nbsp;</div><div class="field-items"><div class="field-item even"><p><strong>Herman K. Trabish</strong> is a full-time news reporter covering regulatory proceedings as well as renewables, energy storage, transmission, and policy issues. Formerly a Doctor of Chiropractic, he transitioned to his current career and cut back on treating when he realized his plan to save the world one patient at a time was taking too long. Feel free to direct feedback and story ideas to <a href="mailto:herman@NewEnergyNews.net">herman@NewEnergyNews.net</a>.</p>
</div></div></div><div class="field field-name-field-import-volume field-type-node-reference field-label-inline clearfix"><div class="field-label">Magazine Volume:&nbsp;</div><div class="field-items"><div class="field-item even">Fortnightly Magazine - May 2015</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p>Duke Energy Commercial Portfolio President Marc Manly said it well, recalling how Duke helped broker a ground-breaking regulatory agreement on solar energy policy: <span style="font-size: 13.0080003738403px; line-height: 1.538em;">"I would point to what we managed to do in South Carolina," Manly said. "We showed we can work with all stakeholders, including some very difficult people, and with some head-knocking, work out legislation and regulatory rules."</span></p>
<p>But in other states, as Manly notes, the net metering debate has sometimes proved "caustic" and "antagonistic," making it nearly impossible to reach consensus. "Emotions have run wild," he says. "Name-calling has occurred and pretty extreme positions got staked out."</p>
<p>What makes the difference in outcomes?</p>
<h4><b>The Utility Advantage</b></h4>
<p>Most commission proceedings begin with the utility stating its case. This initiative tends to give the utility an advantage - a "presence," if you will, according to the attorneys, regulators, public advocates, and stakeholders who agreed to speak on the record about their experiences in participating in utility regulatory proceedings.</p>
<p>"Utilities' profits and losses are associated with sales and revenues but really they are determined by the relationship they have with their regulators, says Paul Kaufman, attorney with Chadbourne and Parke.</p>
<p>"That's why they stay focused on commission relationships."</p>
<p>Kaufman continues: <span style="font-size: 13.0080003738403px; line-height: 1.538em;">"Enron was the only company I worked at where a lot was spent on regulation, policy, and legislation." But Enron had 80 to 100 people on those activities globally, while big utilities have that many full-time people for one state, he said.</span></p>
<p>"We had meetings with regulators and before we arrived there were utility people in the room and after we left there were utility people in the room," Kaufman said. He was not suggesting wrongdoing but that utilities tend to maintain a presence.</p>
<p>Leveling the utility advantage in numbers and money is very difficult, said former Federal Energy Regulatory Commission (FERC) Chair Jon Wellinghoff. "At the state level, the utility sometimes literally had more lobbyists than all the interveners and commission staff combined," he recalled of his earlier time as a consumer advocate.</p>
<p>How a utility participates begins with company culture and management's attitude. "Utilities can be very constructive," Wellinghoff added. "Utility conduct is bad when they object to every single question and every single effort to elicit necessary information."</p>
<p>Karl Rabago notes how, at the outset of each new term at the Texas Public Utility Commission, a parade of utility CEOs, general managers, vp's, and regulatory affairs people would come in for "a kiss-the-ring visit."</p>
<p>The conversations typically were not substantive, Rabago explains, speaking of his time as a commissioner on the Texas PUC. (He's now executive director of the Pace Energy and Climate Center, but still a leading intervener in PUC proceedings.)</p>
<p>Yet almost every visitor told him they had heard he was "so smart," he remembered.</p>
<p>"Then the rule-making began and the first thing they said when they came in was 'the smart thing to do is...' That is why people talk about regulatory capture," Rabago said. "It is real and you have to be vigilant."</p>
<p>Regulators deal with powerful people "and you can lose track of your identification with the public interest," Rabago adds. "Manipulative parties will turn that bit of ego into a bias."</p>
<p>But a smart advocate will not be an agent of regulatory capture because it doesn't necessarily lead to decisions that stand the test of time, Rabago added.</p>
<p>Demand charges recently approved by the Wisconsin Public Service Commission for three utilities - We Energies, Madison Gas and Electric, and Wisconsin Public Service - are an example of policy unlikely to stand the test of time, according to Bradley Klein, senior attorney for the Environmental Law and Policy Center (ELPC).</p>
<p>"It was a lost opportunity for Wisconsin to have a conversation we need to have in every state with utilities, commissioners, and other stakeholders, about the future direction for the electric power industry," said Klein, an intervener in the case.</p>
<p>Despite maintaining good relationships with commissions in the Midwestern states where it works, ELPC has far less interaction than local utilities, Klein said. "It is not a level playing field. That's why a separate docket and an open forum are so important."</p>
<h4><b>The Art of Conversation</b></h4>
<p>The core of a good regulatory proceeding is a conversation: <span style="font-size: 13.0080003738403px; line-height: 1.538em;">"It is a public conversation because a commissioner is a public official," as Rabago states. "And it should not be different when you are on the dais or off the dais of or alone in the office or writing an email."</span></p>
<p>Open discourse builds confidence in public institutions, Rabago continued, recalling a Texas story about two commissioners who chat briefly about a case at the men's room urinals. An attorney then emerges from a stall and informs the commissioners they are deliberating on a public matter out of the hearing of the public. The Texas Supreme Court concurred.</p>
<p>In a Georgia proceeding, Rabago recalled, a commissioner had asked a lawyer cross-examining him a question. When the lawyer didn't know the answer, Rabago said he had raised his hand like a student and offered the answer. A few minutes later, however, when another question arose, Rabago didn't have an answer - but the lawyer did, and mimicked Rabago's performance.</p>
<p>"It was fun," Rabago concedes. "But nobody gave up ground." We were exploring the issue," he said.</p>
<p>Commissions create the atmosphere. If they stimulate public curiosity and require hard intellectual work, the parties, including utilities, will send the right kind of people and reinforce that behavior, Rabago said.</p>
<p>He offered recent cases from Florida and North Carolina as examples: <span style="font-size: 13.0080003738403px; line-height: 1.538em;">"The difference was that North Carolina ran a good and open process. Even the utilities brought their better game. The Florida utilities' testimony suggested they didn't have to justify anything."</span></p>
<p>As an intervener, Rabago finds it is "absolutely clear who the utility commissioners are, who the industrial party commissioners are, and who the citizen party commissioners are," he said. "You have to learn to count and categorize commissioners."</p>
<p>Intellectual bias is not corruption but "it is sad if it means you never have a chance. That happened in Wisconsin."</p>
<p>The system favors the utility because commissioners understand the financial implications of deciding against utility requests. "The pressure is there," Rabago said. "At the PUCT, it was called 'management discretion.' It was a reminder the commission isn't there to manage the utilities."</p>
<p>Some regulators see the commission as a bridge to other opportunities, Rabago explained. "That makes them inclined to side with the politically powerful, which are most often utilities," in Texas or anywhere else.</p>
<p>When testifying, it is important to acknowledge the utility position. "Commissioners have to get past the idea of harming the utility financially," Rabago said. "They are grateful when I address utility concerns. Consumer advocates and environmental activists sometimes seem too sharp-elbowed."</p>
<p>Despite its flaws, the regulatory process appeals to Rabago's "free-market green" inclination. Like market competition, he said, it has low barriers to entry and exit, contestable market shares, and transparency.</p>
<p>"Anyone can be an intervener," he explained. "And, in most cases, I can gain some market share for my ideas, my policies, my technologies, if I'm willing to do good-old-fashioned hard work, put the case together, and show why it is the best idea."</p>
<p>Former regulatory Jon Wellinghoff, who served recently as FERC chairman, observes that speakers at a commission proceeding are too often there just to get across three talking points.</p>
<p>"They don't care about anything else," Wellinghoff said. "They repeat them seven different ways and avoid engaging in dialogue. They will answer a question they want to answer rather than the one asked."</p>
<p>As FERC Chair, Wellinghoff found little to do about such interveners: <span style="font-size: 13.0080003738403px; line-height: 1.538em;">"If you can, engage them with more in-depth discussion. But usually that is not possible. You have time limits and you have to allow everybody to have their say."</span></p>
<p>Staff-conducted workshops elicited better information, Wellinghoff found. He might sit by and listen or ask questions or just get a post-workshop staff report.</p>
<p>"Workshops took it down a notch in formality and often produced more candid, less polished, non-talking point responses," Wellinghoff said. "Middle- and lower level people would come forward, people who were on the front lines and knew the nuances of the issues."</p>
<p>In his current role as intervener (he's now at Stoel Rives, LLP), he might prefer a face-to-face interaction with the decision-maker to a workshop, Wellinghoff acknowledged. But the decision-maker's priority has to be on obtaining the facts.</p>
<p>"You should probably ban attorneys if possible," Wellinghoff, an attorney himself, joked. "I remember a number of times when I was hearing attorneys make legal arguments that obscured the substantive information decision-makers needed."</p>
<p>Another alternative might be a neutral facilitator, such as a member of the Regulatory Assistance Project (RAP), Wellinghoff said. "They might lead a multi-party workshop with state regulators, utility representatives, and other stakeholders that ends with conclusions and consensus."</p>
<p>Attorney Paul Kaufman agrees that intervenors should see their job in one sense as assisting the regulators in formulating policy.</p>
<p>"What happens around the edges of the regulatory process is social engineering," Kaufman said. "Your job is to educate the regulators as to your business and provide context, and to build credibility."</p>
<p>Ant that begins, Kaufman notes, with developing a presence at the commission over time: <span style="font-size: 13.0080003738403px; line-height: 1.538em;">"If you wait until you go in front of the commission, you are left with having to file testimony. It can be done that way but it is not what you want to do."</span></p>
<h4><b>The Art of the Deal</b></h4>
<p>Despite residual hostility that followed after the Arizona Corporation Commission (ACC) completed its bitter proceeding over net energy metering in late 2013, Lon Huber reports that he was able to help broker a landmark compromise between Arizona Public Service (APS), the state's dominant electricity provider, and the state's solar industry. (Formerly an energy policy specialist with RUCO, the state's Residential Utility Consumer Office, Huber now works with Strategen Consulting.)</p>
<p>The question in Arizona was whether elected commissioners at the ACC would grant requests by APS and Tucson Electric Power (TEP) to enter the rooftop solar business at ratepayer expense. Huber began with an analysis of the numbers. Meetings with stakeholders and commissioners followed. "There are politics involved but you try to put together the best policy you can," he explained.</p>
<p>"The three important factors in the rooftop solar compromise were reducing the size from 20 megawatts to 10 megawatts, constraining installations to certain feeders, and containing costs," Huber explained. These two compromises were settled one at a time.</p>
<p>First, RUCO and the utility had negotiated the cost parity principle, which limited the cost of new rooftop solar programs to no more than the existing net energy metering program. "That demonstrated to the solar industry the utility was not getting a blank check but would have to be competitive," Huber said.</p>
<p>Second, refocusing the project on pre-identified feeders came after only after hearing solar industry and commissioner concerns in one of the first non-voting ACC meetings. This new tact maximized solar installation benefits to ratepayers and again eased solar industry concerns about utility intrusion.</p>
<p>The size reduction then followed from these first two compromises.</p>
<p>Nevertheless there are times, Huber acknowledges, when agreement is just not politically feasible. For example, recent efforts on renewable energy credits and energy efficiency failed, as Huber notes, because "the political will at the commission was not there." But on two or three occasions, Huber recalled, he put together joint comments from as many as five or more diverse stakeholders:</p>
<p>"It creates credibility when others know you are an honest broker," Huber said.</p>
<h4><b>Working Behind the Scenes</b></h4>
<p>Compromises can fail when <i>ex parte</i> rules prevent engagement with commissioners and their staffs, Huber said.</p>
<p>"I like to go in before <i>ex parte</i> rules exclude it and, on spending issues, give an overview of costs and benefits," he explained. "I sometimes use an Excel display to show impacts from changing assumptions. Sometimes they suggest other changes and we look at the impacts together."</p>
<p>"What to do and what not to do depends on the context," said former FERC Chair James Hoecker. "It requires a certain nimbleness of mind to figure out the regulatory authorities' goals and general attitude."</p>
<p>Under Hoecker, FERC instituted several "pro-market, pro-competition" initiatives, such as Order 888 and Order 2000, intended to "move away from monopolies," he said. They were labeled deregulation and that led to mistakes by those without the "nimbleness of mind" to understand it was not deregulation.</p>
<p>FERC makes decisions based on a record developed by stakeholders, their lawyers, their economists, and other experts. Decisions are based on what commissioners see as consistent with the law, precedents, and the public interest, Hoecker said. "It can be a pretty complicated calculus."</p>
<p>The other way to communicate with and influence regulators is through less formal meetings at the commission or at outside events, Hoecker said. "You have to understand the limits of the commission's authority, what they are required to do and not do, and what the thinking and trends are," he added. "I have seen some real doosies of miscommunication."</p>
<p>Often executives simply wasted Hoecker's time. "We had hundreds of cases," he said. "Your goal on a courtesy visit is to explain the importance of what you are doing and why you need commission authorization. If there are technical details, explain those."</p>
<p>Regulators should, however, be wary when people are telling them exactly what they want to hear, Hoecker said. "Enron's Jeff Skilling and his staff knew the commission wanted to promote competition in electricity markets and developed all kinds of ways that we ultimately found were defrauding the market. But they were very convincing and had done their homework. They essentially told us what we wanted to hear."</p>
<p>For his part, former FERC chair Wellinghoff counsels against what he describes as "behind the scenes emails and other things between parties."</p>
<p>"I am not a big fan of such meetings," Wellinghoff said. "It ultimately cuts off others from participating and takes away transparency and openness. Unfortunately, the price you pay for the transparency and openness is the talking points."</p>
<h4><b>Taking the Long View</b></h4>
<p>"Communication with the commission on diverse and critical-to-the-economy industries requires nimbleness and creativity," Hoecker said. "It is not just a matter of telling people what you want. It is a matter of trying to figure out how to get what you want. That is much more sophisticated."</p>
<p>"If there weren't things to counteract the utilities' advantages, they would win everything and there would be no competition and no independent power industry," Kaufman said. "The thing to understand is that it is a series of regulatory and policy proceedings and rule-makings where consistency and honesty and straightforwardness help immensely and where moving the ball incrementally, though it is frustrating, is OK."</p>
<p>Commissions are not courtrooms, Kaufman said. "People used to litigating and winning and moving on don't realize that is not how it goes. They come in thinking the way to win the war is to win the skirmish."</p>
<p>That doesn't work, first, because it is a long, incremental process, he said. Second, commissioners and administrative law judges interested in the facts and making sure the record is complete don't respond to flourishes that work in front of a jury and "you are not likely to have a Perry Mason moment."</p>
<p>Third, the opposition will be "in the next hearing and the hearing after that," Kaufman said. "You eventually need their cooperation. If you are abrasive or aggressive you may not get it."</p>
<p>Despite the inequities and complexities, those interviewed remain optimistic about regulatory proceedings, perhaps because, as Wellinghoff said, "regulators will ultimately gravitate to the best and most efficient solutions."</p>
<p>Or perhaps it is because, as Rabago said, "We believe in the process."</p>
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Tue, 05 May 2015 19:36:09 +0000meacott19731 at http://www.fortnightly.comEnron's Lessonshttp://www.fortnightly.com/fortnightly/2015/05/enrons-lessons
<div class="field field-name-field-import-deck field-type-text-long field-label-inline clearfix"><div class="field-label">Deck:&nbsp;</div><div class="field-items"><div class="field-item even"><p>Are regulators managing market manipulation?</p>
</div></div></div><div class="field field-name-field-import-byline field-type-text-long field-label-inline clearfix"><div class="field-label">Byline:&nbsp;</div><div class="field-items"><div class="field-item even"><p><span style="font-size: 13.0080003738403px; line-height: 20.0063037872314px;">Ken Silverstein, Editor-In-Chief</span></p>
</div></div></div><div class="field field-name-field-import-bio field-type-text-long field-label-inline clearfix"><div class="field-label">Author Bio:&nbsp;</div><div class="field-items"><div class="field-item even"><p><strong>Ken Silverstein</strong> is editor-in-chief of Public Utilities Fortnightly. Contact him at <a href="mailto:ksilverstein@fortnightly.com">ksilverstein@fortnightly.com</a>.</p>
</div></div></div><div class="field field-name-field-import-volume field-type-node-reference field-label-inline clearfix"><div class="field-label">Magazine Volume:&nbsp;</div><div class="field-items"><div class="field-item even">Fortnightly Magazine - May 2015</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p>Enron's collapse stands perhaps as the most the indelible bankruptcy in US history - one that not only triggered a recession but also caused lawmakers and regulators alike to remake the rules by which corporations must live. A key question remains, however: Are markets today better insulated from manipulation?</p>
<p>In their book "Market Power and Market Manipulation in Energy Markets," the Brattle Group examines this question. On one hand, the authors cite the virtues of capitalism as a means to growth and prosperity - which depends on free markets. On the other, they say that ethical and legal violations that lead to fraud betray the trust of consumers, necessitating clear rules and regulations.</p>
<p>"Although the recent wave of manipulation investigations involved behavior in disparate parts of the United States and were separated from the California Crisis by more than a decade, in both old and new cases [the] wholesale electric markets were suspected of failing to deliver effective competition and fair prices," write Gary Taylor, Shaun Ledgerwood, Romkaew Broehm and Peter Fox-Penner.</p>
<p>In all cases, "regulators confronted market participants who argued that market manipulation was too subjective to be prohibited" - that the energy traders were simply profiting within the confines of an imperfect system, the authors add. Their book is published by Public Utilities Reports, Inc., parent company of the <i>Fortnightly.</i></p>
<p>Traders in Enron's day sought merely to match buyers and sellers, profiting from those transactions. At that time, deregulation was the buzzword - the ability to combine knowledge and technology to create market efficiencies and to provide new services. It was less about owning assets and more about finding arbitrage opportunities, or buying low in one region and selling high in another.</p>
<p>"All of our traders are incented to make money," one chief executive told Brattle's authors. "They look for opportunities. Some call it gaming; we say it's playing by the rules as they're laid out."</p>
<p>Just who or what is responsible for corporate conduct? Is it the job of policymakers to write defensible laws or is it the obligation of market participants to live by the Golden Rule? Certainly, such dilemmas are not always black and white. But, clearly, unethical companies don't last: Witness Enron, whose system of checks and balances totally broke down.</p>
<p>During this "Brave New World" of restructuring, Brattle's authors say that regulators lacked the tools required to combat the issues with which they would soon be confronted. The regulatory process is now more watchful than it was during the California energy crisis and when Enron was alive and kicking.</p>
<p>Market monitors are now observing all participants and the assets that they hold, all while traders face increasing requirements to report their activities. The goal is to reduce the likelihood of severe market distortions and massive wealth transfers, especially if one firm gets too heady.</p>
<p>"Many would argue that the Federal Energy Regulatory Commission (FERC) had been asleep at the switch during the California crisis," says Brattle's Taylor, in a phone interview. "But its thinking had not progressed along with the markets: Enron's activities involved fraud-based manipulation and the commission didn't have the model to address this."</p>
<p>Since 2005, however, the regulator that oversees open access rules tied to the transmission network has been given more authority by Congress. Between 2010 and 2014, FERC opened 35 investigations into market manipulation, the book says. In 2013, it reached its biggest settlement yet - when JP Morgan agreed to pay $410 million in penalties tied to alleged manipulative behaviors.</p>
<p>And in 2012, the Commodity Futures Trading Commission stepped up its enforcement under the Dodd-Frank legislation: It collected a $14 million fine from Optiver and others for influencing the NYMEX's oil and gas futures contracts and then making false statements to conceal those activities.</p>
<p>To be clear, there are now two separate sets of rules by which traders must abide: The first ones are controlled by "tariffs" that try to protect against the exercise of market power; the second are those intended to prevent outright or transactional fraud - to plug the holes that the tariffs may not have been designed to catch.</p>
<p>For example, during the California crisis and during the hottest summer days, traders "over-scheduled" electricity deliveries as a way to create traffic jams over the wires - all to jack up prices that were controlled by tariffs. That kind of behavior is no different than if there would be an intentional placement of false information into the market that results in a bias - and is classified as fraud. That is something for which FERC has been given the oversight as part of the 2005 Energy Policy Act.</p>
<p>Whereas FERC had been accused of lackadaisical oversight during Enron's heyday, the question today is whether it is too aggressive. If the enforcement of the rules is too cumbersome, it could have an adverse impact. In other words, markets prosper if there is an array of participants who are legitimately trading. That keeps markets liquid, enabling more transparency and better pricing.</p>
<p>"Some argue that due process may be violated now - that regulators are reaching beyond their authority," says Brattle's Ledgerwood, in a phone interview. "But a broad fraud-based rule is needed to deal with fairly different circumstances that involve different trading strategies and behaviors."</p>
<p>The book considers BP and Barclays: In the case of BP, FERC has assessed a $29 million fine for allegedly manipulating natural gas markets in mid-to-late 2008. As for Barclays, the same agency has already ordered it and four of its traders to pay $488 million for allegedly trying to massage markets - a case now before a federal district court. BP and Barclays strongly deny these allegations.</p>
<p>Meantime, the book also examines a case involving Energy Transfer Partners, Constellation Energy (now part of Exelon Corp.), and Deutsche Bank Energy Trading. All involve allegations of market manipulation. Energy Transfer Partners decided to settle in 2009 for $30 million while Constellation did the same for $245 million. Deutsche Bank argued that it sought legitimate marketing opportunities but opted to settle for about $1.6 million.</p>
<p>Power marketing and trading will always exist as a way to match legitimate buyers and sellers. Undoubtedly, some will stray from ethical behavior. But markets must be properly regulated if confidence is to be restored and the economic upswing is to continue. And while some will argue that today's regulatory regime is too confining, the goal is to prevent players from gaming the system and causing an economic meltdown.</p>
</div></div></div><div class="field field-name-field-article-category field-type-taxonomy-term-reference field-label-above clearfix"><h3 class="field-label">Category (Actual): </h3><ul class="links"><li class="taxonomy-term-reference-0"><a href="/article-categories/retail-markets-0">Retail Markets</a></li><li class="taxonomy-term-reference-1"><a href="/article-categories/energy-policy-legislation">Energy Policy &amp; Legislation</a></li></ul></div><div class="field field-name-field-members-only field-type-list-boolean field-label-above"><div class="field-label">Viewable to All?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-article-featured field-type-list-boolean field-label-above"><div class="field-label">Is Featured?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-department field-type-taxonomy-term-reference field-label-above clearfix"><h3 class="field-label">Department: </h3><ul class="links"><li class="taxonomy-term-reference-0"><a href="/department/frontlines">Frontlines</a></li></ul></div><div class="field field-name-field-image-picture field-type-image field-label-above"><div class="field-label">Image Picture:&nbsp;</div><div class="field-items"><div class="field-item even"><img src="http://www.fortnightly.com/sites/default/files/1505-FR.jpg" width="875" height="503" alt="" /></div></div></div><div class="field field-name-field-fortnightly-40 field-type-list-boolean field-label-above"><div class="field-label">Is Fortnightly 40?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-law-lawyers field-type-list-boolean field-label-above"><div class="field-label">Is Law &amp; Lawyers:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-above clearfix">
<div class="field-label">Tags:&nbsp;</div>
<div class="field-items">
<a href="/tags/enron">Enron</a><span class="pur_comma">, </span><a href="/tags/market">market</a><span class="pur_comma">, </span><a href="/tags/bankruptcy">bankruptcy</a><span class="pur_comma">, </span><a href="/tags/manipulation">manipulation</a><span class="pur_comma">, </span><a href="/tags/brattle-group">Brattle Group</a><span class="pur_comma">, </span><a href="/tags/wholesale">Wholesale</a><span class="pur_comma">, </span><a href="/tags/competition">competition</a><span class="pur_comma">, </span><a href="/tags/regulator">regulator</a><span class="pur_comma">, </span><a href="/tags/trader">trader</a><span class="pur_comma">, </span><a href="/tags/deregulation">Deregulation</a><span class="pur_comma">, </span><a href="/tags/california">California</a><span class="pur_comma">, </span><a href="/tags/federal">federal</a><span class="pur_comma">, </span><a href="/tags/ferc">FERC</a><span class="pur_comma">, </span><a href="/tags/jp-morgan-0">JP Morgan</a><span class="pur_comma">, </span><a href="/tags/dodd-frank">Dodd-Frank</a><span class="pur_comma">, </span><a href="/tags/nymex">NYMEX</a><span class="pur_comma">, </span><a href="/tags/fraud">fraud</a><span class="pur_comma">, </span><a href="/tags/tariff">tariff</a><span class="pur_comma">, </span><a href="/tags/over-scheduled">over-scheduled</a><span class="pur_comma">, </span><a href="/tags/constellation">Constellation</a><span class="pur_comma">, </span><a href="/tags/deutsche">Deutsche</a> </div>
</div>
Tue, 05 May 2015 16:17:40 +0000meacott19721 at http://www.fortnightly.comStart the Conversationhttp://www.fortnightly.com/fortnightly/2014/09/start-conversation
<div class="field field-name-field-import-deck field-type-text-long field-label-inline clearfix"><div class="field-label">Deck:&nbsp;</div><div class="field-items"><div class="field-item even"><p><span style="font-size: 13.3333339691162px; line-height: 1.538em;">The regulator’s role in a world divided by </span><span style="font-size: 13.3333339691162px; line-height: 1.538em;">distributed generation.</span></p>
</div></div></div><div class="field field-name-field-import-byline field-type-text-long field-label-inline clearfix"><div class="field-label">Byline:&nbsp;</div><div class="field-items"><div class="field-item even"><p><span style="line-height: 20.0063056945801px;">Hon. Sherina E. Maye</span></p>
</div></div></div><div class="field field-name-field-import-bio field-type-text-long field-label-inline clearfix"><div class="field-label">Author Bio:&nbsp;</div><div class="field-items"><div class="field-item even"><p class="p1" style="font-size: 13.3333339691162px; line-height: 20.0063056945801px;"><strong>Sherina E. Maye</strong> was appointed by Illinois Governor Pat Quinn in February 2013 to a five-year term on the Illinois Commerce Commission, making her the youngest ICC commissioner ever appointed. Prior to her appointment, Ms. Maye practiced law with Locke Lord LLP, where she focused on consumer finance litigation. Commissioner Maye thanks her summer intern Anne McKeon, a 2015 JD candidate at Notre Dame Law School, for her valuable assistance and quick grasp of issues in the preparation of this article.</p>
</div></div></div><div class="field field-name-field-import-volume field-type-node-reference field-label-inline clearfix"><div class="field-label">Magazine Volume:&nbsp;</div><div class="field-items"><div class="field-item even">Fortnightly Magazine - September 2014</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p>At a time when there are numerous questions about what the increased use of distributed generation (DG) will mean for the electric utility, many are looking to regulators for answers and guidance. One thing is clear: continued growth of DG means changes to the historical utility business model. Such changes will create challenges and opportunities for utilities, consumers and regulators alike. In order for utilities and consumers to accept these challenges and embrace opportunities, regulators must ensure a smooth transition into the future by starting a dialog with all stakeholders, including utilities, DG and non-DG customers.</p>
<p>For utilities, increased use of DG can mean a loss of customers and a decline in revenue. The falling cost of solar combined with rising grid costs is making solar an affordable and attractive option for many consumers. In fact, in the U.S., there was more solar installed in the first quarter of 2014 than any other source of electricity. (GTM Research, FERC Energy Infrastructure Update, March 2014.) Additionally, the development of battery storage technology has the potential to enable some customers to drastically reduce their purchases and perhaps, in the future, detach from the grid completely.</p>
<p>Many electric utilities are concerned that the burden of maintaining the grid will continue to be placed on a dwindling number of customers. As customers shift toward renewable options, the costs of maintaining the system will fall more heavily on those who either cannot afford to or do not want to switch to DG. If prices rise, even more consumers will likely consider DG options, which will only continue to increase costs for the remaining customers, resulting in what some have called a "death spiral."</p>
<p>A likely utility response will be to suggest that DG customers should still pay a proportional share of the original system costs even if they are just using the grid for back-up services. Or, utilities may argue for higher fixed charges. However, charging higher prices for the same services is not popular with consumers. And while recovering more of systems costs through fixed charges might slow down customer interest in DG in the short-term, higher fixed charges could have a negative long-term impact in terms of denying customers the choices and services they want.</p>
<p>To respond to the demands of today's consumer, utilities should consider shifting from commodity sales companies to those that provide services to customers. With that said, there is a distinction between a "ratepayer" and a "customer" that utilities and regulators must take into consideration during this time of transition. The term "ratepayers" connotes passivity and assumes that those paying these rates contribute very little to managing load. A "customer," on the other hand, is much more active and has an established role in managing load and making decisions about services. Consumers want to be active customers, not passive ratepayers.</p>
<p>In short, utilities will want to maintain a viable business model, increase revenues and ensure returns on investments while consumers want more choices, reasonable rates and reliable service. Regulators can play a constructive role here by making it possible for utilities to maintain the value of the grid and existing services while simultaneously allowing for the development of new products and services that better meet customer preferences.</p>
<p>There is a lot of talk about restructuring the utility business model and how a new model should look. Some advocate for policies that keep customers on the grid by making DG less economic. Others may be in favor of hastening the move to DG through the adoption of incentives. However, before a new business model can be proposed, regulators need to strategically address this issue so as to balance the needs of the utilities and the consumers before technology really starts driving disruption. For example, regulators can discourage battles over cost recovery and, because the grid does have a role to play in the future, regulators should also be reluctant to adopt policies that will encourage consumers to adopt uneconomic DG. During this interim period, regulators should bring decision-makers together and facilitate discussions of these issues.</p>
<p>Conversations about the impact of DG are already occurring in many states. For example, in the wake of recent large storms, the Maryland Energy Administration has developed plans to deploy micro grids to improve grid reliability. Similarly, the Massachusetts Department of Public Utilities recently issued a grid modernization strategy in response to changing technology. The New York Public Service Commission (NYPSC) has begun its Reforming the Energy Vision Initiative, which not only promotes wider use of distributed energy sources but also views the role of the utility as Distributed System Platform Provider (DSPPs). The NYPSC sees DSPPs managing energy resources, implementing technology, facilitating the flow of information and providing pricing structures for services.</p>
<p>Regulators in other states and regions need to start these kinds of conversations by inviting stakeholders to the table in order to move this entrenched debate and discuss the pertinent questions. Relevant players might include state utility regulators, environmental advocates, consumer advocacy groups, utilities, grid operators, DG companies, and service providers. Additionally, many large and well-known IT companies such as Google, Apple and Comcast have experience with the digital services consumers are demanding and should be included in the conversation to make future customer interactions as accessible and convenient as possible.</p>
<p>Important questions for these stakeholders to consider include:</p>
<p><b>Service Providers.</b> Should regulated utilities be allowed to get into the DG business and provide these services to their customers?</p>
<p><b>Cost Recovery. </b>How can rates be adjusted so that costs are recovered even as sales levels change?</p>
<p><b>Reliability.</b> How can performance metrics and/or decoupling be included to increase reliability?</p>
<p><b>Resiliency. </b>How can micro-grid technology be used to respond to severe weather?</p>
<p><b>Efficiency.</b> What kinds of incentives will encourage utilities to meet energy efficiency goals?</p>
<p><b>Fairness.</b> Should ratemaking be modified so that costs are fairly allocated?</p>
<p><b>Investment.</b> How should capital providers be encouraged to ensure a continued flow of funds to essential energy projects?</p>
<p><b>Net Metering.</b> What role should net metering play in the future of the utility model?</p>
<p><b>Smart Grid.</b> How can new services from non-utilities (e.g. digital service providers) be incorporated into a business model while also preserving utilities and the grid, possibly as a distribution platform?</p>
<p>Specific ways to consider starting this conversation include inviting a third- party facilitator to gather the parties and issue a report for state regulatory commissions. Illinois used this type of model for its Statewide Smart Grid Collaborative. Alternatively, commissions could head an initiative themselves through any combination of staff reports, proposals and/or public proceedings such as those the NYPSC has issued for their Reforming the Energy Vision Initiative. Regardless, conversations should include discussions about guiding principles. For example, Great Britain's Office of Gas and Electricity Markets (Ofgem) has developed the Revenue=Incentives + Innovation + Outputs (RIIO) performance-based model for setting price controls while General Electric has proposed results-based regulation in their white paper encouraging grid modernization and operational efficiency. Regulators should consider what kind of model will best respond to their state's specific issues.</p>
<p>It is also important for state regulators to think about how Section 111(d) of the Clean Air Act can help facilitate this conversation.</p>
<p>In requiring states to develop individual plans to comply with greenhouse gas regulations for existing power generators, 111(d) gives direction to use renewables and energy efficiency. Because solar options can provide a basis for compliance under 111(d), the Environmental Protection Agency is likely to allow states to use solar and other renewables as compliance options. This mandate provides another reason to begin bringing decision-makers together for collaboration within states.</p>
<p>At this point, the most important step is ensuring that a good regulatory conversation surrounding these issues happens in the near future while there is still time to adjust to the approaching changes. The process of bringing relevant parties to the table to have a discussion is the best way regulators can help ease the current transition for both utilities and consumers. It is not about finding the "right" answer, for there may be many different "right" answers depending on the needs and regulatory requirements of each state. It is about having the right conversation, with the right people, at the right time. Now is the right time for state regulators to start these conversations.</p>
</div></div></div><div class="field field-name-field-article-category field-type-taxonomy-term-reference field-label-above clearfix"><h3 class="field-label">Category (Actual): </h3><ul class="links"><li class="taxonomy-term-reference-0"><a href="/article-categories/distributed-generation">Distributed Generation &amp; Microgrids</a></li><li class="taxonomy-term-reference-1"><a href="/article-categories/customer-engagement">Customer Engagement</a></li></ul></div><div class="field field-name-field-members-only field-type-list-boolean field-label-above"><div class="field-label">Viewable to All?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-article-featured field-type-list-boolean field-label-above"><div class="field-label">Is Featured?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-department field-type-taxonomy-term-reference field-label-above clearfix"><h3 class="field-label">Department: </h3><ul class="links"><li class="taxonomy-term-reference-0"><a href="/department/perspective">Perspective</a></li></ul></div><div class="field field-name-field-image-picture field-type-image field-label-above"><div class="field-label">Image Picture:&nbsp;</div><div class="field-items"><div class="field-item even"><img src="http://www.fortnightly.com/sites/default/files/1409-PER_0.jpg" width="974" height="869" alt="" /></div></div></div><div class="field field-name-field-fortnightly-40 field-type-list-boolean field-label-above"><div class="field-label">Is Fortnightly 40?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-law-lawyers field-type-list-boolean field-label-above"><div class="field-label">Is Law &amp; Lawyers:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-above clearfix">
<div class="field-label">Tags:&nbsp;</div>
<div class="field-items">
<a href="/tags/illinois">Illinois</a><span class="pur_comma">, </span><a href="/tags/distributed-generation">Distributed generation</a><span class="pur_comma">, </span><a href="/tags/renewable">Renewable</a><span class="pur_comma">, </span><a href="/tags/solar">Solar</a><span class="pur_comma">, </span><a href="/tags/gtm-research">GTM Research</a><span class="pur_comma">, </span><a href="/tags/ferc">FERC</a><span class="pur_comma">, </span><a href="/tags/intermittent">intermittent</a><span class="pur_comma">, </span><a href="/tags/battery">Battery</a><span class="pur_comma">, </span><a href="/tags/grid-0">grid</a><span class="pur_comma">, </span><a href="/tags/pat-quinn">Pat Quinn</a><span class="pur_comma">, </span><a href="/tags/locke-lord">Locke Lord</a><span class="pur_comma">, </span><a href="/tags/anne-mckeon">Anne McKeon</a><span class="pur_comma">, </span><a href="/tags/ratepayer">ratepayer</a><span class="pur_comma">, </span><a href="/tags/customer">customer</a><span class="pur_comma">, </span><a href="/tags/maryland">Maryland</a><span class="pur_comma">, </span><a href="/tags/massachusetts">Massachusetts</a><span class="pur_comma">, </span><a href="/tags/new-york">New York</a><span class="pur_comma">, </span><a href="/tags/dspp">DSPP</a><span class="pur_comma">, </span><a href="/tags/regulator">regulator</a><span class="pur_comma">, </span><a href="/tags/consumer-advocacy">consumer advocacy</a><span class="pur_comma">, </span><a href="/tags/google">Google</a><span class="pur_comma">, </span><a href="/tags/apple">Apple</a><span class="pur_comma">, </span><a href="/tags/comcast">Comcast</a><span class="pur_comma">, </span><a href="/tags/cost-recovery">Cost recovery</a><span class="pur_comma">, </span><a href="/tags/reliability">Reliability</a><span class="pur_comma">, </span><a href="/tags/resiliency">resiliency</a><span class="pur_comma">, </span><a href="/tags/efficiency">efficiency</a><span class="pur_comma">, </span><a href="/tags/fairness">Fairness</a><span class="pur_comma">, </span><a href="/tags/investment">investment</a><span class="pur_comma">, </span><a href="/tags/net-metering">Net metering</a><span class="pur_comma">, </span><a href="/tags/smart-grid">Smart grid</a><span class="pur_comma">, </span><a href="/tags/111d">111(d)</a> </div>
</div>
Wed, 03 Sep 2014 21:45:07 +0000meacott17856 at http://www.fortnightly.comCybersecurity and the PUChttp://www.fortnightly.com/fortnightly/2014/04/cybersecurity-and-puc
<div class="field field-name-field-import-deck field-type-text-long field-label-inline clearfix"><div class="field-label">Deck:&nbsp;</div><div class="field-items"><div class="field-item even"><p>Regulators and utilities should collaborate more to address cyber threats.</p>
</div></div></div><div class="field field-name-field-import-byline field-type-text-long field-label-inline clearfix"><div class="field-label">Byline:&nbsp;</div><div class="field-items"><div class="field-item even"><p>Andy Bochman</p>
</div></div></div><div class="field field-name-field-import-bio field-type-text-long field-label-inline clearfix"><div class="field-label">Author Bio:&nbsp;</div><div class="field-items"><div class="field-item even"><p class="p1"><b style="line-height: 1.538em;">Andy Bochman</b><span style="line-height: 1.538em;">, the principal of Bochman Advisors, has extensive experience in energy sector security. This article represents the author’s views and not those of his clients.</span></p>
</div></div></div><div class="field field-name-field-import-volume field-type-node-reference field-label-inline clearfix"><div class="field-label">Magazine Volume:&nbsp;</div><div class="field-items"><div class="field-item even">Fortnightly Magazine - April 2014</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p>For the most part, the relationship between a utility and a regulator has been defined as one where one side feels obligated to review and the other to prove a certain position. The regulators and the utilities are comfortable living in a world of slow-changing rules, whether related to rate-setting, forecasting demand, promoting energy efficiency, quality and reliability, etc.</p>
<p>However, the electric sector is changing, and that change is making reliability more challenging than ever. From observing the industry's angst, one might imagine that electric utilities are the only ones that need to pay attention to new challenges brought by rapidly changing technology. Both sides - the utility and the regulator - seem unsure exactly how to deal with the ostensibly new concept of cybersecurity.</p>
<p>When we talk about grid cybersecurity in this article, we're primarily referring to the security of the electric grid - whether wholesale or retail. But when you think about it, the same principles, to a greater or lesser extent, apply to all types of utility service providers, and most if not all types of businesses and public entities, as almost every organization these days is enabled by technology.</p>
<p>In the electric industry, a wave of modernization began under the banner of "smart grid" several years ago. Among other things, smart grid technology is enabling the electricity distribution system to evolve into more decentralized or distributed topologies, in which electricity can travel in multiple directions.</p>
<p>Until recently electricity flow used to be a one-way trip - from large centralized coal, nuclear, hydro, or gas generators, across high-voltage transmission lines to lower-voltage distribution lines to consumers. Smart grid technology now enables two-way flows, not only of electricity but also of information, allowing those that generate their own electricity to move their surpluses back into the grid, generating income in addition to electricity, often through net metering tariffs. In the new electricity marketplace, data about network operations and resources is becoming valuable to generators, distributors, and consumers who can monitor and adjust their generation and consumption using sophisticated technology that didn't exist just a handful of years ago.</p>
<p>Before smart grid, utilities were responsible for the physical security of their systems - a job they performed successfully. And so far, after the introduction of smart grid, utilities have continued successfully to secure their systems, now from a cybersecurity perspective as well. An important factor in ensuring overall system integrity has been the NERC Critical Infrastructure Protection standards (NERC CIP). However, the CIPs cover only one portion of the grid - the bulk electric system (BES) - comprising the largest generators and high-voltage transmission assets. The rest of the system - arguably the biggest part of it - is left to the public utility commissions (PUC) who are called to monitor the health of lower-voltage distribution systems in their jurisdictions, and this now includes cybersecurity matters.</p>
<p>Cybersecurity is a new operational element for PUCs to regulate. And it's particularly challenging because, unlike forecasting load, acquiring resources, or rate setting, the cybersecurity posture of a utility system can change daily, if not more frequently. Although it seems simple enough for utilities to employ cybersecurity experts, the same doesn't apply to most PUCs. In order to prevent cybersecurity threats - and to adapt and respond to them - a utility needs a certain level of flexibility to take fast action. Where such actions require PUC oversight or approval, the utility might need quick turnaround. The PUC should, at a minimum, have a basic understanding of this constantly evolving threat and be prepared to take timely action - because, as the saying goes, in regards to cybersecurity, the utility must be right all the time, while the attacker has to be right only once.</p>
<p>So, what's the ideal relationship between the utility and its regulator? What are some commonly accepted facts regarding cybersecurity? What are good first steps or recommendations that can be followed in order to minimize the effect of a cyber attack on customers and the infrastructure?</p>
<h4><b>Interests and Threats</b></h4>
<p>There's often an assumption that utilities and regulators have conflicting interests. However, this assumption is erroneous. Both utilities and regulators have the same goals under the utility compact: to deliver safe and reliable service at a reasonable price. The difference lies in the way each side reaches the goals, or its reasons for achieving them.</p>
<p>For instance, a utility might want to minimize costs in order to maximize profits, while a regulator might want to minimize costs to keep service rates low. Similarly, both sides want the utility to remain financially stable, so that it can continue to provide service. Neither goal can be achieved absent the delivery of reliable service.</p>
<p>A cybersecurity program is one of the tools that allows a utility to continue to provide reliable service. And cybersecurity is becoming more important as utilities deploy increasingly complex technology, and as the sophistication of attackers continues to increase. Cybersecurity goes beyond protecting customers' credit card, consumption, or personal information. It's an essential element in the pursuit of the most important of the three goals listed above - delivery of reliable service.</p>
<p>The bulk of cyber threats to any system fall into five categories: 1) nation states; 2) cyber criminals; 3) criminal hackers; 4) terrorists; and 5) insiders. Each of these categories has different goals. Similarly, each of them will have a different effect on the attacked utility.</p>
<p>• <i>Nation states:</i> With the exception of parties at war, the primary reason behind a nation's attack on the other's utility infrastructure would be to access intelligence and gain some sort of a strategic economic or technical advantage.</p>
<p>• <i>Cyber criminals</i> are motivated by profit, generally seeking to exploit, not destroy the utility system. To-date they have proven to be the most common and capable threat.</p>
<p>• <i>Criminal hackers:</i> For the most part, criminal hackers don't seek to destroy an infrastructure. They are, traditionally, politically motivated and their goal is to publicly shame victims.</p>
<p>• <i>Terrorists</i> have been the least common group. Usually, they look at targets of opportunity and aren't persistent. However they need to be taken seriously as their aim is to cause damage and disruption.</p>
<p>• <i>Insiders</i> have elevated privileges that external attackers must work to obtain. Often driven by a revenge motive, they provide unique security concerns that in part can be mitigated by internal controls.</p>
<h4><b>Facing Reality</b></h4>
<p>The World Wide Web recently celebrated its 25th birthday, and yet the majority of PUCs don't have a cybersecurity expert on staff - and many haven't even taken steps to establish a cybersecurity function within the agency. Electric, gas, water, and consumer protection experts fill the ranks of PUCs, and these experts play an active and helpful role in rate proceedings. However, the absence of a cybersecurity expert is bound to create a problem when a utility proposes procurement of new security software or services, additional staffing, or other expenses relating to cybersecurity.</p>
<p>Several questions arise from this realization.</p>
<p>First, who is responsible for stressing to the regulator the need for a cybersecurity function? In over 100 years, the PUCs have dealt comfortably with physical assets - tangible matters. Realizing that state coffers aren't overflowing with funds, it's unlikely that PUCs will establish a cybersecurity function without an external impetus. Arguably the utility bears responsibility to stress the need for such expertise at the PUC.</p>
<p>That raises a second question: is the utility ready to or interested in making such recommendations to the PUC? The answer depends on the culture of each utility in general and its CEO in particular. Many utilities have created distinct cyber-related security functions, but many others haven't. Those that have created cybersecurity functions typically have embedded them within information technology (IT) departments. As a result their CEOs, who usually don't have much interaction with personnel in IT below the level of CIO, might be unable to respond to some basic questions:</p>
<p>• Does my security organization fully understand our business priorities?</p>
<p>• Do I have the right security organization for my enterprise and is it aligned with our overall governance structure?</p>
<p>• Do we have contingencies ready for major cybersecurity or privacy incidents?</p>
<p>• Can I trust the integrity of the data that's driving our business decision?</p>
<p>• How do I communicate effectively to my board on security and privacy matters?</p>
<p>• Do I have a complete and accurate inventory of all assets requiring protection?</p>
<p>• Am I making the right and best investments in security, and are these investments prudent and reasonable?</p>
<p>Another question that needs to be answered is: how are the interested parties (interveners in rate proceedings) educated? These interested parties, such as consumer advocates, low-income customer groups, etc., usually intervene in rate proceedings with the goal of minimizing costs. Who keeps them up-to-date, and how, are points that need addressing.</p>
<p>We read and hear in the media of the increasing frequency and potency of cybersecurity attacks. Corporate espionage, nations spying on each other, and pure data theft are clear indicators of the ease with which some systems are breached. It's clear that adaptation is necessary: adaptation at the PUC, at the utility, and at consumer levels.</p>
<p>Adapting their thinking processes will allow stakeholders to better understand how to respond to a cybersecurity breach. With physical events such as fires, explosions, flooding, or substation attacks, all parties have something tangible to look at and evaluate. In fact, with such events, the utility can take a proactive role, which is easily reviewed and evaluated by the PUC. Vegetation management, pipeline maintenance, physical security, etc., are some of the tangible measures that a utility can take. The difference with cyber-related events is that it can take much longer not only to pinpoint the point of intrusion, but also to discover the full effect of the events.</p>
<p>Even though we haven't yet seen any major U.S. outages attributed to cyber attack, cybersecurity breaches have the potential to be catastrophic. According to NERC, the Northeast blackout of 2003 cost between $7 and $14 billion. Because there was no malicious intent, some of the damage was identified quickly and power was restored in some areas within a few hours. In a cybersecurity event, the cause or damage might not be identified as quickly. As a result, the time it will take to restore affected systems could be much longer and the cost might be significantly higher.</p>
<p>It's clear that neither the regulator nor the utility can afford to assume a purely reactive posture. Putting the risks to life and safety aside, the financial costs of a cybersecurity-related event can be huge. Mechanisms within the utility must be set up in order to ensure a solid proactive cyber-defense approach. On the PUC side, knowledge and understanding of cybersecurity issues must become part of its standard operating mode. The common good requires open communications between utilities and PUCs on security.</p>
<p>The heaviest burden for cybersecurity falls on the shoulders of the utility. But a fundamental change in attitude will be necessary for both regulators and utilities in order for the industry to effectively manage cybersecurity. Both regulators and utilities should stop thinking simply in terms of their strict roles in the regulatory process. Instead, progress depends on a more truly collaborative process, in which information is safely and openly shared among utilities and regulators to the benefit of both groups - and everyone who depends on them.</p>
<p> </p>
</div></div></div><div class="field-collection-container clearfix"><div class="field field-name-field-sidebar field-type-field-collection field-label-above"><div class="field-label">Sidebar:&nbsp;</div><div class="field-items"><div class="field-item even"><div class="field-collection-view clearfix view-mode-full"><div class="entity entity-field-collection-item field-collection-item-field-sidebar clearfix">
<div class="content">
<div class="field field-name-field-sidebar-title field-type-text field-label-above"><div class="field-label">Sidebar Title:&nbsp;</div><div class="field-items"><div class="field-item even">Cybersecurity Steps for Utility CEOs</div></div></div><div class="field field-name-field-sidebar-body field-type-text-long field-label-above"><div class="field-label">Sidebar Body:&nbsp;</div><div class="field-items"><div class="field-item even"><!--smart_paging_autop_filter--><!--smart_paging_filter-->1) Establish a baseline; know your starting point. How is the cybersecurity function presently organized? Who's in charge? What is their position within the organization? Can they establish goals and policy regarding cybersecurity? Are they part of a cybersecurity function or some other function?
2) Establish business-oriented security metrics. To better manage cybersecurity related performance, a utility needs metrics that permit internal evaluation and optimization of capabilities and performance.
3) Seek a centralized view of security for the CEO by establishing a security executive in charge of cyber and physical security policy and enforcement enterprise-wide. The position shouldn't be located in IT. Start thinking of cybersecurity across the organization. Identify security gaps and initiate the process of calibrating security investments according to evolving risks.
4) Establish a security governance board similar to other corporate boards within the utility. The security governance board should bring together high-level officers from the various areas of operations and as a result it will improve internal communications regarding cybersecurity, and will help better align business and security priorities.
5) Include security considerations in all major business decisions, including procurements of technology and services, staffing actions, mergers and acquisitions, etc.</div></div></div> </div>
</div>
</div></div><div class="field-item odd"><div class="field-collection-view clearfix view-mode-full field-collection-view-final"><div class="entity entity-field-collection-item field-collection-item-field-sidebar clearfix">
<div class="content">
<div class="field field-name-field-sidebar-title field-type-text field-label-above"><div class="field-label">Sidebar Title:&nbsp;</div><div class="field-items"><div class="field-item even">Cybersecurity Steps for PUCs</div></div></div><div class="field field-name-field-sidebar-body field-type-text-long field-label-above"><div class="field-label">Sidebar Body:&nbsp;</div><div class="field-items"><div class="field-item even"><!--smart_paging_autop_filter--><!--smart_paging_filter-->1) Accept that the utilities in your jurisdiction will be attacked. Some of these attacks will be successful.
2) Since the utilities in your jurisdiction will be breached, establish a cybersecurity function in your agency. Allow this function to act as the main clearinghouse for all cybersecurity related information (the good and the bad) that flows across your organization.
3) Allow for a safe harbor clause that would enable utilities to communicate with the PUC without risking regulatory penalties.
4) Establish a baseline of expectations, so that everyone understands their responsibilities.
5) Allow for periodic meetings with the utilities and the parties usually participating in rate proceedings. An educated intervener allows for a smoother rate proceeding.</div></div></div> </div>
</div>
</div></div></div></div></div><div class="field field-name-field-article-category field-type-taxonomy-term-reference field-label-above clearfix"><h3 class="field-label">Category (Actual): </h3><ul class="links"><li class="taxonomy-term-reference-0"><a href="/article-categories/states">The States</a></li><li class="taxonomy-term-reference-1"><a href="/article-categories/security-reliability-cip">Security, Reliability &amp; CIP</a></li></ul></div><div class="field field-name-field-members-only field-type-list-boolean field-label-above"><div class="field-label">Viewable to All?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-article-featured field-type-list-boolean field-label-above"><div class="field-label">Is Featured?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-image-picture field-type-image field-label-above"><div class="field-label">Image Picture:&nbsp;</div><div class="field-items"><div class="field-item even"><img src="http://www.fortnightly.com/sites/default/files/1404-FEA2.jpg" width="1125" height="685" alt="" /></div></div></div><div class="field field-name-field-fortnightly-40 field-type-list-boolean field-label-above"><div class="field-label">Is Fortnightly 40?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-law-lawyers field-type-list-boolean field-label-above"><div class="field-label">Is Law &amp; Lawyers:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-above clearfix">
<div class="field-label">Tags:&nbsp;</div>
<div class="field-items">
<a href="/tags/utility">Utility</a><span class="pur_comma">, </span><a href="/tags/regulator">regulator</a><span class="pur_comma">, </span><a href="/tags/rate-setting">rate-setting</a><span class="pur_comma">, </span><a href="/tags/forecasting">forecasting</a><span class="pur_comma">, </span><a href="/tags/efficiency">efficiency</a><span class="pur_comma">, </span><a href="/tags/quality">quality</a><span class="pur_comma">, </span><a href="/tags/reliability">Reliability</a><span class="pur_comma">, </span><a href="/tags/cybersecurity">cybersecurity</a><span class="pur_comma">, </span><a href="/tags/smart-grid">Smart grid</a><span class="pur_comma">, </span><a href="/tags/coal">coal</a><span class="pur_comma">, </span><a href="/tags/nuclear">Nuclear</a><span class="pur_comma">, </span><a href="/tags/hydro">Hydro</a><span class="pur_comma">, </span><a href="/tags/gas">GAS</a><span class="pur_comma">, </span><a href="/tags/two-way">two-way</a><span class="pur_comma">, </span><a href="/tags/electricity">electricity</a><span class="pur_comma">, </span><a href="/tags/information">information</a><span class="pur_comma">, </span><a href="/tags/net-metering">Net metering</a><span class="pur_comma">, </span><a href="/tags/nerc">NERC</a><span class="pur_comma">, </span><a href="/tags/infrastructure">Infrastructure</a><span class="pur_comma">, </span><a href="/tags/cip">CIP</a><span class="pur_comma">, </span><a href="/tags/bulk">bulk</a><span class="pur_comma">, </span><a href="/tags/bes">BES</a><span class="pur_comma">, </span><a href="/tags/public-utility-commission">public utility commission</a><span class="pur_comma">, </span><a href="/tags/puc">PUC</a><span class="pur_comma">, </span><a href="/tags/bochman-advisors">Bochman Advisors</a><span class="pur_comma">, </span><a href="/tags/reliable">reliable</a><span class="pur_comma">, </span><a href="/tags/interveners">interveners</a><span class="pur_comma">, </span><a href="/tags/consumer-advocates">consumer advocates</a> </div>
</div>
Thu, 03 Apr 2014 01:13:58 +0000meacott17139 at http://www.fortnightly.comGame Changershttp://www.fortnightly.com/fortnightly/2013/11/game-changers
<div class="field field-name-field-import-deck field-type-text-long field-label-inline clearfix"><div class="field-label">Deck:&nbsp;</div><div class="field-items"><div class="field-item even"><p>State regulators address transformative forces.</p>
</div></div></div><div class="field field-name-field-import-byline field-type-text-long field-label-inline clearfix"><div class="field-label">Byline:&nbsp;</div><div class="field-items"><div class="field-item even"><p>Michael T. Burr</p>
</div></div></div><div class="field field-name-field-import-bio field-type-text-long field-label-inline clearfix"><div class="field-label">Author Bio:&nbsp;</div><div class="field-items"><div class="field-item even"><p><b>Michael T. Burr</b> is <i>Fortnightly’s</i> editor-in-chief. Email him at <a href="mailto:burr@pur.com">burr@pur.com</a>.</p>
</div></div></div><div class="field field-name-field-import-volume field-type-node-reference field-label-inline clearfix"><div class="field-label">Magazine Volume:&nbsp;</div><div class="field-items"><div class="field-item even">Fortnightly Magazine - November 2013</div></div></div><div class="field field-name-field-import-image field-type-image field-label-above"><div class="field-label">Image:&nbsp;</div><div class="field-items"><div class="field-item even"><img src="http://www.fortnightly.com/sites/default/files/1311-FEA1-Kjellander.jpg" width="1220" height="829" alt="&quot;Part of the regulator’s job is recognizing that things change. Things that weren’t doable in the past are doable now.&quot; - Paul Kjellander, President, Idaho PUC" title="&quot;Part of the regulator’s job is recognizing that things change. Things that weren’t doable in the past are doable now.&quot; - Paul Kjellander, President, Idaho PUC" /></div><div class="field-item odd"><img src="http://www.fortnightly.com/sites/default/files/1311-FEA1-Heydinger.jpg" width="1220" height="833" alt="&quot;We want to provide certainty for solar investors, but also be able to make the adjustments that will be inevitable as penetration levels increase.&quot; - Beverly Jones Heydinger, Chair, Minnesota PUC" title="&quot;We want to provide certainty for solar investors, but also be able to make the adjustments that will be inevitable as penetration levels increase.&quot; - Beverly Jones Heydinger, Chair, Minnesota PUC" /></div><div class="field-item even"><img src="http://www.fortnightly.com/sites/default/files/1311-FEA1-Scott%2C.jpg" width="1212" height="829" alt="&quot;Illinois is half nuclear and half traditional coal. We don’t know what the mix will be in 20 years, but we’re pretty sure it won’t be that.&quot; - Doug Scott, Chairman, Illinois Commerce Commission" title="&quot;Illinois is half nuclear and half traditional coal. We don’t know what the mix will be in 20 years, but we’re pretty sure it won’t be that.&quot; - Doug Scott, Chairman, Illinois Commerce Commission" /></div><div class="field-item odd"><img src="http://www.fortnightly.com/sites/default/files/1311-FEA1-Kendall.jpg" width="1500" height="842" alt="Wind turbines in North Dakota generate power for Minnesota Power customers in Duluth, via a transmission line the company purchased in 2009. Minnesota Power in October applied for a certificate of need to build a 500-kV transmission line to import power from Manitoba Hydro. Photo courtesy Kendall Lorenz" title="Wind turbines in North Dakota generate power for Minnesota Power customers in Duluth, via a transmission line the company purchased in 2009. Minnesota Power in October applied for a certificate of need to build a 500-kV transmission line to import power from Manitoba Hydro. Photo courtesy Kendall Lorenz" /></div><div class="field-item even"><img src="http://www.fortnightly.com/sites/default/files/1311-FEA1-Dominion.jpg" width="1500" height="997" alt="Dominion shut down the State Line Generating Station, near Chicago, in March 2012, and agreed in April 2013 to pay $13.2 million in penalties for Clean Air Act violations at three coal-fired plants, including State Line. Source: Eric Allix Rogers, used under Creative Commons License" title="Dominion shut down the State Line Generating Station, near Chicago, in March 2012, and agreed in April 2013 to pay $13.2 million in penalties for Clean Air Act violations at three coal-fired plants, including State Line. Source: Eric Allix Rogers, used under Creative Commons License" /></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p>One of the main purposes of utility regulation is to provide certainty for investment and operations. Utilities run the world’s largest infrastructure, and those assets don’t turn on a dime. The system is planned, designed, and executed on a time horizon spanning decades – 30 years or more for baseload power plants and transmission systems.</p>
<p>Given this planning time scale – and the magnitude of its investments – utilities understandably dislike paradigm shifts. If they were subject to the whims of fickle market forces and technologies that advance at a Moore’s Law pace, cost of capital would be much higher for utilities than it is today. Utility stock wouldn’t be mattress money; it would be more speculative. And the utility system likely would be less stable – that’s the cost of trying to bring new technologies on stream faster. Whether a <i>laissez-faire</i> energy market, without financial regulation, would produce lower costs than today’s quasi- and fully regulated markets is an intriguing question, but it’s largely academic; regulators (and the legislators who provide their authority) have their hands on numerous levers that determine which direction the industry will go, and how fast.</p>
<p>However, those levers don’t work like they once did. </p>
<p>Between technology advancement and federal regulation, regulators are scrambling faster than ever to keep up with changing market conditions. Meanwhile, state legislatures and federal policy makers are handing down new mandates and directives – in some cases shrinking regulators’ authority, and in other cases providing new tools that regulators must learn to use. </p>
<p>As a general matter, the basic utility regulatory compact remains in place, but even that is being subjected to new scrutiny. The fundamental definition of “utility service” is beginning to evolve – driven primarily by a rapid growth curve for non-traditional energy resources, specifically wind and solar energy, distributed generation (DG), and demand-side management. Even cheap natural gas is putting a strain on regulators’ ability to plan ahead.</p>
<p>Exactly what this means for the industry depends on whom you ask. For this Regulators’ Roundtable, we spoke to the leaders of three commissions in inland states that are experiencing transformative changes: </p>
<ul>
<li>Doug Scott, Chairman, Illinois Commerce Commission</li>
<li>Beverly Jones Heydinger, Chair, Minnesota Public Utilities Commission</li>
<li>Paul Kjellander, President, Idaho Public Utilities Commission</li>
</ul>
<p>Their comments suggest that while the game might well be changing for utilities, regulators are determined to maintain a semblance of certainty in the services the industry provides.</p>
<p><b>FORTNIGHTLY</b> Industry trends are driving utility regulatory policies differently in different states. How are the issues evolving in your state, and how have they affected the commission’s focus and efforts?</p>
<p><b>Paul Kjellander, Idaho PUC:</b> One of the key drivers – dependence on natural gas prices – has driven our thought processes. We’re always looking to bring on least-cost resources. Going forward natural gas will have a major role in integrated resource planning (IRP) for utilities. When utilities replace generating facilities, their decisions will be heavily dependent on the cost of natural gas at that time and place. </p>
<p>You don’t want to put too much weight on any one resource. You never know what’s going to happen. If rules on fracking change, there will be a shift on the cost of gas. Also there’s potential for exporting natural gas outside North America, and that could have a huge impact. </p>
<p>The other factor is new rules and regulations from the Environmental Protection Agency (EPA). The current administration came out and said they intend to use the Clean Air Act through the EPA to impose stricter rules on coal-fired generation, and there likely will be more rules coming down, creating more risk for consumers and uncertainty about the future of coal-fired generators. If there’s a decision to shut down a coal-fired generator and replace it with other resources, what stranded costs will need to be recovered from consumers? </p>
<p>The endgame is that we don’t want consumers to pay more for resources than they ought to be paying. We’re now one of the low-cost states, and we’d like to remain that way – and not just in a relative fashion. If we’re all priced out of the ability to have electricity as something other than a luxury, what does it matter if the price is relatively lower than other states? If it’s too expensive, it’s too expensive. </p>
<p>With regard to DG and net metering, the question is whether DG customers are going off grid or whether they’ll need the utility’s resources. It’s a question of how fixed costs are recovered as a component of billing. No one knows where it will end up. The policy likely won’t be set by regulators but by legislators in our state.</p>
<p>As far as renewable energy goes, in a state like Idaho, because of the way in which our generation resources were developed 30 to 50 years ago, we have a lot of hydro power that has allowed us to maintain low costs for consumers. That has been great. Will we see any new large-scale hydro in the area? The answer is no, and even if we did it doesn’t qualify as renewable under renewable portfolio standards (RPS). About 20 percent of our resources now are from PURPA wind power projects built largely in the last five years. Unfortunately we’ve had a lot of gaming the system, taking advantage of FERC’s one-mile separation rule to take large utility-scale wind projects and break them into 10-MW projects, and forcing utilities to take that power via PURPA QF contracts. We had to change the way the PURPA rule was applied, because we had too many projects coming online. </p>
<p>We’re not lagging in renewables; we’re ahead of a lot of neighboring states. When you look at Rocky Mountain Power, 23 to 26 percent of its resources are non-hydro renewables. But a lot of it has happened as a result of the gaming of PURPA. </p>
<p>Reliability is a key issue for us going forward. How do you firm up those resources that you have on board today, and ensure that you can meet standards as they change and still provide reliability? </p>
<p>One of our biggest problems is getting access to federal land for siting new transmission. We see a mismatch of federal policies. The administration is saying we want more renewables and better reliability, but in the West to get those things you need access to federal lands. Just try to get something sited on federal land. It’s very problematic. We have issues around the sage grouse, a small wild bird, and other avian species and vegetation that are considered endangered. There’s almost no end to the potential impacts when you start the environmental impact assessment that’s necessary to get something sited. Some wind projects have been stranded. </p>
<p><b>Doug Scott, Illinois Commerce Commission:</b> The biggest thing in Illinois in the last several years has been infrastructure modernization programs. Those started off as rate riders for pipeline replacements on the gas side and smart meters on the electric side. Both riders got tossed out by the courts, saying the commission exceeded its authority. The parties went to the legislature, and instead of just going for legislation to grant authority to the commission, they went for more all-encompassing programs with the Energy Infrastructure Modernization Act (EIMA).</p>
<p>In EIMA, electric utility return on equity (ROE) is set by statute, so we don’t do that anymore, other than just to plug in numbers. However, on the gas side we still set utility ROEs, so we’ve got a couple of different models going at one time. </p>
<p>I previously was the director of the Illinois Environmental Protection Agency. Issues involving fuel mix and resource adequacy over the next 20 years are important. For resource adequacy, the Illinois Power Agency procures power. We review their plans and pass on their adequacy analysis. Our involvement in the planning process is very limited, compared to commissions in other states. But we’re trying to approach those issues that are important to Illinois. </p>
<p>There are carve-outs in statute, including an RPS, and we also have a clean coal portfolio standard. In terms of non-renewable resources, Illinois is half nuclear and half traditional coal. It’s something we think about because we don’t know what the mix will be in 20 years, but we’re pretty sure it won’t be that.</p>
<p><b>Beverly Jones Heydinger, Minnesota PUC:</b> The issues in Minnesota are developing in the context of relatively flat demand. The recession had a smaller impact here and the recovery has been speedier than in some other states, but demand for electricity hasn’t grown at the same rate as the economy. </p>
<p>Slowed growth in demand isn’t necessarily a bad thing. In Minnesota we’re big proponents of energy efficiency. We’ve had some successful energy efficiency programs and we have good incentives for our gas and electric utilities to increase energy efficiency – the cheapest form of energy. The less demand grows, the more economical it ultimately should be for our ratepayers. </p>
<p>But we see pressures for increased investment. We want to move toward more renewable energy, we see benefits in increased reliability from more distributed generation, and we need to replace and upgrade our infrastructure. If you can’t pay for that investment through growing demand and increased sales, then what are your options? Since we are financial regulators at root, that’s the crux of the issue. </p>
<p>We’ve had great success in Minnesota in setting goals and meeting them, and the reason is that those goals had a long enough planning horizon that utilities could plan accordingly. Examples are the state’s early commitment to renewable energy standards, and the slow move from voluntary to statutory obligations. Utilities feared they might not be able to meet those renewable energy standards, so there were some off-ramp mechanisms developed. Truthfully the utilities haven’t had any trouble meeting the standards and they would say so. Most of them also would say it’s less costly than they had anticipated. Of course other forces have helped, but nonetheless the certainty and long planning horizons gave the utilities the opportunity to look for good deals and figure it out.</p>
<p>We see the same thing with energy efficiency. We moved slowly, from spending goals to savings goals. We’ve had pretty generous financial incentives. The companies have met those goals, and in many cases exceeded them. </p>
<p>The challenges are great, but the key is to agree on the vision, how we’re going to achieve it, and how we can send clear signals and align financial incentives to get there from here.</p>
<p><b>FORTNIGHTLY</b> Minnesota’s Omnibus Energy legislation in May 2013 established a 1.5-percent solar mandate, and also called for creating a value-of-solar tariff, among other things. What do you see as the most important challenges of implementing that legislation?</p>
<p><b>Heydinger:</b> We very quickly have to set a solar value, and that won’t be easy. I’m told that many states will be looking to see what we do because we might be the first state to set that value. It’s been done on a local basis but I’m not sure there’s been a statewide effort to establish solar value. On the other hand there are other states with much higher solar penetration, so there are lessons we can learn from them.</p>
<p>A lot of people are talking about the costs and benefits of solar, and some of those are much easier to monetize than others. The Minnesota Department of Commerce is leading workshops with the goal of having a proposed value-of-solar methodology to us by the end of the calendar year. We’ll review what they provide, make whatever adjustments we think are appropriate to the methodology, and set that solar value. Utilities will have the option to file a value-of-solar tariff or to stay with net metering and other existing options. We have tiny solar penetration in Minnesota right now. It’s significantly less than 1 percent. We want to provide certainty for the solar investors, but also be able to make the adjustments that will be inevitable as the penetration levels increase. That’s a big challenge. </p>
<p>Similarly, the Minnesota Legislature asked us [<i>in Article 12, §4 of Minnesota Laws 2013, ch. 85</i>] to consider what it will take, from a transmission and integration perspective, to reach 40 percent renewables, and more thereafter. [<i>Editor’s note: Also, proposed legislation (H.F. 880) would amend the state’s renewable energy standard to 40 percent by 2030.</i>] Bringing everybody together, thinking about that, we’ll start to see some consistency in the results, and that will help guide efforts. </p>
<p>We have a robust IRP process in Minnesota. When utilities file their IRPs, they’re required to look 15 years ahead, both at their sales and the generation resources. We’ve been sending the signal consistently that we want them to build energy efficiency into that model. Clearly now they’ll have to build in the solar goals. Although it’s a big leap from where we are today to 1.5 percent solar penetration, there are a lot of customers that will be exempt from that calculation. The early estimates are for 350 to 400 MW of solar capacity, and in the big scheme of the state’s energy picture that’s not a lot of solar. Like a lot of shifts, some utilities will adapt more easily than others. </p>
<p>Another aspect that’s challenging for us is that historically we haven’t gone to utilities and said ‘site your generation resources here or there.’ As we’re trying to maximize the investment we’re making in the transmission grid, it would be nice if we could provide incentives to site generation where there’s transmission capacity for it. As we see how the Department of Commerce would like to promote greater development of distributed generation, that issue might become clearer.</p>
<p>Distributed generation is related to the value-of-solar question. It’s tricky, the whole switch from straight net-metering to a new approach. What’s the backbone utility system that we need to have available at all times? How should it be paid for, so that the investment doesn’t squelch innovation and further development of solar and other DG, but at the same time assuring that utilities have the money to maintain that backbone in a reliable way? That will be the challenge.</p>
<p><b>FORTNIGHTLY</b> Various states have been increasing their use of alternative ratemaking and cost-recovery mechanisms. Examples include decoupling, rate riders, pre-approvals, and multi-year rates. Other examples are performance-based rates. How are such structures used in your state? </p>
<p><b>Kjellander:</b> We have, through statute, regulatory pre-approval processes for major capital expenditures. Utilities come to us and we provide a range that helps them on later prudency review. This process has been around for only a couple of years, and we’re just starting to see how it works. Mostly it helps reduce the risk for utilities, making it easier for them to get financing because they have regulatory pre-approval up to a certain dollar amount. There’s still a prudency review, even on the expenditures that were approved, but those things are helpful for getting long-term financing. </p>
<p>Another thing we have in Idaho is called a ‘power cost adjustment’ (PCA) for two utilities [<i>Avista and Idaho Power</i>] and for another [<i>Rocky Mountain Power</i>] it’s called ‘energy cost adjustment mechanism’ (ECAM). These methodologies are for balancing revenues and costs for wholesale purchases and capacity sales into the market. We’ve had these mechanisms in place for a while. The concern is that they could become a catch-all for everything, in avoidance of a rate case. They should be isolated to things that are known and measurable, and typically are tied to fuel cost. You need a rate case for looking at all the pieces, the parts, the cost of capital, the return on investment, all of those things. </p>
<p>We had one case recently where a lot of PURPA wind projects were approved over the last couple of years, and instead of putting them into a rate case, the utility put them into a PCA. As it happened those costs were fairly significant, and also it was a low hydro year. That meant the PCA was going up to make up for the lack of fuel – hydro – and the utility had to look at purchasing power. It all came together at one time to fully expose the wind costs in the PCA. Going forward, such costs should be removed from the PCA methodology. It doesn’t mean consumers won’t pay for contractually agreed wind, but those costs will be in the proper place – built into fixed costs in the rate base. </p>
<p>One benefit of the PCA approach is that in a great hydro year the utility is able to sell power into the market and customers might actually see a reduction in costs. In six out of the last 10 years we actually had a reduction. But when you throw in other things, the annual PCA doesn’t resemble a benefit to customers. We need to separate out things that should be in the rate base.</p>
<p>In terms of decoupling, Idaho has been one of the leaders nationally, or at least in the West. We were one of the first states to initiate decoupling [<i>for electric utilities</i>], when we implemented a decoupling pilot for Idaho Power. That’s met with a degree of success and we’ve made it permanent. It has removed the disincentives that were perceived over energy efficiency. </p>
<p><b>Heydinger:</b> We’re just putting our toes into decoupling. It’s primarily been on the natural gas side. CenterPoint Energy just concluded a three-year decoupling pilot program. This effort will now be carefully reviewed because CenterPoint just filed a rate case that requests a new, broader decoupling program. We’ll be considering whether that should move forward, and if so whether it needs to be tweaked in some way. We also recently approved a limited gas decoupling pilot for Minnesota Energy Resources.</p>
<p>We have a number of other mechanisms in Minnesota. We have a lot of rate riders, which address regulatory lag and also large infrastructure investments and renewable energy efforts. Riders have strengths and weaknesses, just as rate cases do. They provide greater certainty for the utilities, and in some ways they can help with transparency. But they present other challenges. In a larger rate case you can balance all of the revenues and all of the expenses. When you start to segment the costs, the overall impact is sometimes more difficult to measure. At the Minnesota PUC we have a love-hate relationship with riders. They do serve a purpose but they need to be used with care.</p>
<p>In addition, Xcel a couple of years ago proposed a step-in rate, one rate for a year, and then adding a small increase in a subsequent year. It was quite contentious. Its request was prompted by large infrastructure investment – big investments for rebuilding nuclear plants and for environmental compliance. The step-in rate had a limited impact, but it raised the question of whether we should be looking at the increased costs a utility is projecting without knowing whether revenues will also be increasing. </p>
<p>The legislature authorized the commission to grant multi-year rates – for example, a one-time rate of X in the first year, then X+10 the next year, and so forth. Xcel recently told us that it will file its next rate case on November 1, and that it intends to include a multi-year rate. Xcel also said it will have a partial decoupling proposal. So we will have an opportunity to look anew at whether some kind of decoupling proposal makes sense, and also how a multi-year rate can perhaps ease-in a rate increase. </p>
<p>Riders, decoupling, and step-in rates all have a place, but we aren’t yet in a position to completely separate sales from rates. We’re just at the very beginning of thinking about a model that would compensate utilities for the value they’re providing. Perspectives on decoupling seem to be shifting. Might decoupling be a way to help manage an increased reliance on more distributed generation? To say it’s a game changer is probably too strong, but if you look carefully enough you can see benefits to utilities. In Hurricane Sandy, where there was islanding DG or a microgrid, there was greater resiliency. We had a microgrid workshop recently, and one of the presentations was from the City of Worthington (Minnesota), where during a major storm outage this past spring they had small diesel generators on hand and were able to keep the city running with rolling blackouts. [<i>See “Old-School Microgrid,” Fortnightly, May 2013.</i>]</p>
<p>I think people will start to look a little more holistically at geographic areas and figure out ways to move toward greater resiliency and reliability – and to do it in a way that’s cost-effective and that perhaps helps the environment. There’s a greater understanding that distributed generation offers benefits. There’s also increasing appreciation for demand response. The trick is, how do you value these resources?</p>
<p>MISO now is beginning to look at how it can allow utilities to sell DR into the market, and that is a game changer in many ways. All of these things have compelled us to look at where should be the break between sales and revenue, and what are the alternatives.</p>
<p><b>Scott:</b> In Illinois, alternative structures show up in both the EIMA and in recent gas pipeline replacement legislation [<i>the Natural Gas Consumer, Safety &amp; Reliability Act (SB 2266)</i>], both of which have performance metrics. All of that is monitored by the commission. We’ve had some experience doing this, working with companies like Peoples Gas in Chicago, where there have been issues over time with gas pipeline replacement, and they’ve been reporting progress to us. The new act adds to that, and provides the ability to recover costs. Utilities still have to come to us to show what they’re replacing. If utilities don’t meet performance metrics in EIMA, they can lose basis points on the formula rate that they can recover. Even job creation under EIMA carries a penalty if they don’t meet their performance requirement. There are caps built into the statutes too. </p>
<p>Both of these things are very new to us and we haven’t had a chance to work with them yet. Smart grid, modernization on the electric side, has been starting, but it’s a 10-year investment, so the results will come in as time goes on.</p>
<p>With decoupling, there was a pilot about 10 years ago. It was at a time when gas competition had a lot of issues. We’ve approached compensation in a couple of different ways. We’ve had a rider that would impose a flat fee regardless of use, and we’ve seen utilities in rate cases asking for a greater percentage of straight fixed-variable cost. We haven’t seen utilities come in and ask for a full-blown decoupling mechanism, which still has some fairly strong detractors in the state. </p>
<p>We have a robust energy efficiency standard, and we’re always looking for ways to expand that. It brings up questions about whether the incentives are in the right place. I commend the utilities here. They’ve done a good job promoting energy efficiency and they’re doing what the original deregulation statute called for, which was separating their generation units from their distribution units. It could’ve gone a different way, but they’ve accepted the challenge and have done very well. </p>
<p>Having said that, the whole industry is changing. More DG will be coming online, and these issues get exacerbated. Will utilities be getting into the DG business? Do we have the regulations in place to handle that? We want to encourage renewables, and equally important, avoid passing a bunch of costs for serving DG customers onto other customers who have regular service.</p>
<p><b>FORTNIGHTLY</b> Aside from the transition to formula rates for electric utilities, what does EIMA implementation mean for the Illinois Commerce Commission?</p>
<p><b>Scott:</b> We have new systems to put into place, new things we’re responsible for that have financial consequences for utilities. Job creation is a new thing for us, but we’ll work on that with the Illinois Departments of Commerce and Labor, to set up a new system. The metrics are something we’ve always done, but now there are strong financial penalties directly associated with them under the statute, and we have processes to make sure they’re accurate. </p>
<p>Also the EIMA shortened the time frames for a lot of the work we normally had to do as a commission. People were saying the commission’s job will be easier because we’re not setting ROEs anymore, we’re just plugging in numbers. But both Ameren and ComEd are in before the commission every year, and we’re doing work to verify the costs of work that’s being done on a more regular basis. That’s made it more difficult. There’s really not a time anymore when we’re not in a procedure. That’s new to us, and we’re trying to work through it now. </p>
<p>During the legislative process utilities argued that the [regulatory] lag time was too great. It was hard for them to go out into the market and raise money, and the legislators agreed with them to the extent they thought shortening the time frames was a way to make it work.</p>
<p><b>FORTNIGHTLY</b> Besides those issues, what have been the Illinois Corporation Commission’s concerns about EIMA and the investments it approves?</p>
<p><b>Scott:</b> Our objection wasn’t with grid modernization, but with the rest of the package it was wrapped in. </p>
<p>We have supported grid modernization and AMI initiatives. We see very good consumer benefits from grid modernization. New technologies allow utilities not only to find problems when they happen, but also to prevent some outages. Also the smart meter rollouts have started. We think the meter installations will produce customer benefits as well. As a competitive state, in Illinois alternative retail energy suppliers (ARES) have been able to compete pretty much solely on price for the first few years of the municipal aggregation program. They’ll be able to look at what’s available with smart meters and offer consumers choices that aren’t there now. </p>
<p>Likewise on the pipeline replacement legislation, safety is the primary issue. In a city like Chicago, seeing some of the old pipes that are out there and that literally have been taped up, safety can’t be oversold. It’s huge. And they’re doing things with GIS technology so they know where all the fittings are and don’t have to dig up half the city to find them. Those things help customers in terms of both safety and cost – as long as we do our jobs and make sure the dollars are spent appropriately.</p>
<p><b>FORTNIGHTLY</b> How can regulators help ensure that customers get the greatest value for utility investments – and avoid stranded costs – during a time when the utility industry is going through what seem to be fundamental changes?</p>
<p><b>Heydinger:</b> I don’t have a perfect answer to that. There are some things we do in Minnesota to help. We require utilities to jointly do triennial transmission plans, where they try to look statewide at congestion, not just company-by-company. A group of utilities got together to propose the CAPX2020 lines, and that kind of shared engineering and planning helps reduce risk. Also MISO requires system-wide planning. It’s not perfect, but there are several checks and balances in the process. </p>
<p>We in Minnesota also have a certificate-of-need process, where we put the utility through its paces. That process is intended to help minimize the risk of stranded investments. </p>
<p>Another challenge for us is who should pay for it? We are rich in wind, there’s even more wind to our west, and the demand for it is largely to our east. New transmission lines aren’t popular, and they’d be even less popular if we were paying for it here in Minnesota and the power was going elsewhere. MISO is developing the concept of a multi-value project, and trying to figure out who should pay for it and who’s going to benefit from it. That helps with the problem of stranded investment, but I do worry. </p>
<p>We’re going to be developing transmission for a while in order to eliminate congestion and facilitate more renewables. My hunch is that we’ll see a number of large additional transmission lines constructed over the next five to 10 years.</p>
<p><b>Kjellander:</b> No one has a crystal ball. You might hope you can look ahead and know what the future will be like, but you can’t. If you look at forecasts, the only thing that’s certain is you’ll be wrong. Take the telecom sector. Look at how much investment was made in copper, and how quickly wireless and Internet totally altered the investment that was made. </p>
<p>When you make an investment based on load-growth projections, you make the best decision you can, based on the facts you have at the time. Under our IRP, utilities are required every two years to take a 10- to 20-year look at how they’ll meet load growth. As soon as they file one IRP, they’re looking at the next one, considering transmission, generation, energy efficiency, EPA regulation, and potential Congressional action. A number of things factor into an ongoing process of planning, and that’s all you can do. When it comes time to move forward, you have to make a decision. </p>
<p>Another significant part of the planning process is the Northern Tier Transmission Group, Columbia Grid, WECC, and the Western Governor’s Association. They’re looking at regional electric issues. Tangible things are happening, and you have the right people at the table, working for reliability. </p>
<p>The question is about cost-effectiveness. There are a lot of whiz-bang things you can do, but can you afford them? What’s the right direction to move in? Sometimes the things you say ‘no’ to one year, you’ll say ‘yes’ to 18 months later. Part of the regulator’s job is recognizing that things do change. Things that weren’t doable in the past are doable now.</p>
<p><b>FORTNIGHTLY</b> What venues and approaches are working best for your state to engage in decisions affecting regional transmission planning and cost allocation, especially given that neighboring states don’t always have the same interests or drivers?</p>
<p><b>Heydinger:</b> The Organization of MISO States (OMS) is essential. Although the members don’t always agree, they have a lot of shared interest, and generally can come to consensus. OMS and MISO have been negotiating circumstances under which OMS can file positions with FERC that aren’t the same as MISO is taking. I think that opportunity will be used rarely, but it’s an important option for the state regulators, because it does compel the other stakeholders to pay more attention to what the regulators have to say, and try to find common ground. </p>
<p>I think the states are getting more sophisticated. They understand MISO better, and that’s been a steep learning curve. </p>
<p>Also we invite MISO here for a quarterly meeting, and that’s very beneficial. We get to ask questions and raise topics that are of concern, and we have a chance to follow up with people who are making decisions. </p>
<p>Here at the commission we recognized that we didn’t have the resources we needed to stay on top of pressing issues at MISO and FERC, with planning, reliability, and market functions. We made some staffing changes in order to devote more resources, and it’s been very helpful. The next step is to add more resources so that we can help guide and shape the decisions, which is a different thing from being able to comment and object. We’re not there yet. </p>
<p><b>Scott:</b> We’ve spent a lot of time on transmission issues and have people dedicated solely to them. We’re different from probably every other state, because we’re in two different RTOs that have different planning processes and operations. We’re in a different position in both of them. In PJM, geographically we’re on the far west end of their territory, and in MISO we’re the only fully competitive state in the footprint. </p>
<p>Back when the nuclear plants were built, the state also built substantial transmission at the same time. Statutorily our job is to protect our ratepayers and make sure what they pay is reasonable and prudent. We have to be careful to avoid imposing new costs for transmission that someone else wants. We’re very cautious about it and you’ll see us in litigation over the issue.</p>
<p>But at the same time, we have good relationships with both RTOs. They understand where we’re coming from and we know where they’re coming from. As we talk about resource adequacy, we understand the value of bringing wind from Iowa or the Dakotas to the eastern part of PJM. We have a big RPS ourselves that we want to flourish. </p>
<p>We’re involved in OMS and OPSI (the Organization of PJM States Inc.) Our unique status, however, means that we don’t necessarily agree with the other states all the time. In fact we disagree a lot. That’s OK, but that’s why you see us challenging some of the orders when they go to FERC. </p>
<p><b>FORTNIGHTLY</b> Natural gas is having a different effect in different parts of the country. How is cheap natural gas affecting long-term resource planning in your state?</p>
<p><b>Heydinger:</b> It’s not having quite the effect in Minnesota that it’s having in some places. Xcel got ahead of the game by converting three coal plants to natural gas a while ago as part of an effort to reduce pollution in the Twin Cities metropolitan area. I don’t think Xcel had any idea at the time that natural gas costs would fall as they have, nor did anybody else. But it was fortunate. The change was made to bring down pollution in the urban area, but it clearly has had a benefit for customers by shifting resources from coal to natural gas. </p>
<p>We are seeing several utilities converting to natural gas or acquiring more gas-fired generation. But while the cost of natural gas is definitely low, the cost of wind has really dropped too. There’s real competition and natural gas isn’t the sure winner in Minnesota that it might be in other parts of the country. Xcel’s resource acquisition process is ongoing, so I don’t know how it’s going to turn out. But there will be some head-to-head comparisons of resource costs. </p>
<p>Otter Tail just announced it’s purchasing more wind, and Minnesota Power and Xcel are purchasing more wind. [<i>At press time, the Minnesota PUC approved a separate proposal by Xcel to add 750 MW of wind generation to its Upper Midwest grid. The company said the projects will save customers $225 million over the projects’ lives.</i>] So while we’ll see some additional transition to natural gas, I don’t think it will be to the same extent that some other states might. </p>
<p>The natural gas plants here are running at a relatively low capacity, so the expectation is that some of those plants will run more when the fuel cost is low, and that’s good because it doesn’t require increased investment. </p>
<p>We know that natural gas use has gone up, especially if you look at all resources used in Minnesota in 2010, 2011, and 2012. But we must be careful which horse we ride. There might be longer-term benefits of natural gas, but I don’t think we’ve got all the issues worked out with fracking and shale gas. There are a lot of unknowns as we’ve quickly moved to develop these domestic fuel sources. I want to be sure we have the whole picture. Our IRP process helps a lot, because it gives us a chance to weigh and compare costs. </p>
<p>We will have some challenges in the next few years as coal plants shut down, but they’re mostly issues of timing. Can utilities schedule those shutdowns in such a way that the coal that’s going offline and the coal that’s being retrofitted move in sync with the development of new resources? We’re not faced with as many challenges from this shift as some states are. If we can maintain sufficient variety in the resources we have available and don’t become too heavily dependent on one, over the long term it’s going to be beneficial to the state. That’s been borne out by what we’ve seen with both coal and nuclear power too. States that were too dependent on one form of energy have incurred gigantic costs as regulations have changed. </p>
<p>But having said that, 2030 is going to be another big milestone, because the licenses will expire for the Monticello and Prairie Island nuclear units in the early 2030s, and that’s a lot of power in very centrally located places. It would take a lot of distributed generation to replace those nuclear plants. Everybody knows it, and we need to plan our direction and build flexibility into the system. It seems like a long time away, but in the utility planning horizon, it isn’t.</p>
<p><b>Kjellander:</b> Not long ago, Idaho Power brought its first baseload natural gas resource online at Langley Gulch. The plant helps eliminate the need to build transmission to bring in resources from elsewhere. Several gas-fired peakers also have been brought online, some to accommodate the integration of wind power. We’re seeing natural gas become a more important part of the resource stack.</p>
<p>Also we’re seeing for the first time ever in Idaho some commercially viable natural gas exploration. We might actually become a natural gas producer. </p>
<p>Natural gas has the potential to be a game changer. But as regulators we need to be concerned about becoming too reliant on any one resource. We’ve been a heavy hydro state; about 50 percent of Idaho Power’s supplies have been hydro. That’s wonderful when you get a good water year, but when the snow pack is bad and you get no rain in the spring, the reservoirs don’t fill up, and you have to go to the market. In the Pacific Northwest, if you have a bad hydro year, so do all your neighbors. So you’re looking long and far to bring in resources, which means they’ll be pricey. That’s a reality.</p>
<p>Unfortunately we don’t know what EPA will do with coal-fired generation. Around 40 percent of Idaho Power’s supplies come from coal. Based on the risk associated with that, I’m glad we don’t have more coal-fired generation today. </p>
<p>Having a broader mix of resources in the portfolio is a plus, and having some natural gas in there is good. How much should you have? I don’t have an answer, but if you have too much of any one thing, whatever risk is associated with it will become a negative for your customers. </p>
<p><b>Scott:</b> The shift toward reliance on natural gas is absolutely something we’re concerned about. Although we don’t have the direct authority that other state commissions do, as part of policy committee meetings we’re constantly working with other states to figure out the planning response. We’re also interested from the environmental perspective in what’s going to happen with the fuel mix. We have to be at the table during the state implementation plan (SIP) process. </p>
<p>In Illinois gas prices have driven electricity prices down fairly dramatically at the same time that municipal aggregation was coming into effect, and the ARES were able to offer tremendous price savings to customers in the state, to the point that now about 60 percent of Illinois’s load has switched to alternative suppliers. So in the short term, gas prices have been a boon for consumers. In the long term, we’ve got three major companies with large coal and nuclear fleets. One of those companies – Dynegy – just came out of bankruptcy and is trying to purchase Ameren units in Illinois. Another, Midwest Generation, is going through bankruptcy now. This might have a profound effect on the generation mix. Although we don’t have a specific regulatory function over generation, it’s a conversation we need to be in. We need to know what it will look like from a reliability standpoint. </p>
<p><b>FORTNIGHTLY</b> Some utilities are getting into transportation infrastructure as an adjacent business, sometimes with rate base investments. Is that happening in your state?</p>
<p><b>Kjellander:</b> If natural gas distribution companies were going to be involved in a business that would involve selling their resources for transportation, I don’t know how we would regulate that. My sense is they’d try to do something outside of our regulatory scope. I’m not aware of anything that uses a utility business model, or invests in technology that would end up in the rate base. </p>
<p><b>Scott:</b> There are some EV charging station cases pending now. Also we looked at the regulations for EVs, charging stations, and the impact on reliability. There’s a separate state commission [<i>the Electric Vehicle Advisory Council, formed in 2011</i>] that’s doing that now, under statute. </p>
<p>We’re seeing a lot of charging stations get put up. Walgreens has them. The Illinois Tollway has charging stations at its oases. We’re seeing them pop up in Chicago, at businesses, shopping malls, and in private garages. We’re seeing manufacturers trying to sell them here. I think there’s some real promise that’s going to be bigger as it goes on.</p>
<p>With natural gas vehicles, it’s pretty much combined with fleets now, whether short-haul trucking or buses, in both the private and public sector. Our role would be the same as on the electric side, with regulations needed to facilitate it.</p>
<p><b>Heydinger:</b> We are aware that this is on the horizon. We have a couple of dockets that have touched on it, but we haven’t had to dig into it yet. </p>
<p>I expect we’ll see more EVs on the residential customer side, and CNG will tend to be for larger fleet customers. Historically, the PUC hasn’t regulated transportation fuel. How CNG will be regulated remains to be seen.</p>
<p>Dakota Electric [<i>a Minnesota cooperative that voluntarily files regulated rates</i>] has an EV charging rate. That’s the only company in the state that does. They’re very excited about it. It feeds into the DG trend, and I think it will be interesting. I think electric cars will be a lot like the Prius and other hybrids. The penetration in the market will go slowly for a while, and then it will pop and alternative vehicles will become commonplace.</p>
<p>We focus a lot on transmission and generation planning. We don’t focus much on distribution planning, but one of the concepts we’ve been toying with is what might we want to do in the IRPs to pull distribution planning more into the picture. Because if you’re going to look at DG and EVs, what are the utilities doing? What kind of investments are they planning for their distribution systems? What are the projected costs? Can it be done in a strategic, locational way, or are we just stuck with providing upgraded distribution everywhere at once? </p>
<p>That’s challenging because we haven’t historically done much with distribution planning, except for monitoring reliability. We might see some change in that. We might be asking more questions of utility companies.</p>
<p><b>FORTNIGHTLY</b> What other issues are rising in importance?</p>
<p><b>Heydinger:</b> The first issue is cybersecurity. We are told by the federal agencies that there are cyber attacks on public utilities all the time. It’s not the type of power loss that we have any experience with. It’s not like a blizzard or a hurricane or tornado, with the ability to limit it to location and then deploy line crews toward restoring service. So we’re very concerned about it. </p>
<p>We recently sent out letters to the utilities, not only the ones we regulate, but also the munis and co-ops, expressing our concern and asking each of them to consider their readiness and response to an incursion. We’ve invited their comments about not only their own preparation, but about what they think is the appropriate role for the commission. We’ve also asked them about their compliance with existing national standards. </p>
<p>We’re just getting into this, but we have two significant concerns. One is reliability. Are we prepared? It’s not only a question of what are companies doing to prevent cyber attacks, but how do they plan to recover? The other question, also very challenging for us, is how will we know how much money utilities ought to be spending to prevent incursions? How can we gauge whether $1 million or $10 million or $100 million is too much? </p>
<p>The other issue is we need to be careful that in our zeal for increasing our renewables we don’t overlook energy efficiency and demand-side resources. I don’t want us to get too caught up in the topic <i>du jour</i> and forget to look at the larger economics. I don’t oppose solar or more wind. We need a mix of resources to help protect us. Let’s just make sure we have all of our tools available.</p>
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<a href="/tags/regulator">regulator</a><span class="pur_comma">, </span><a href="/tags/infrastructure">Infrastructure</a><span class="pur_comma">, </span><a href="/tags/stock">stock</a><span class="pur_comma">, </span><a href="/tags/laissez-faire">laissez-faire</a><span class="pur_comma">, </span><a href="/tags/regulated">regulated</a><span class="pur_comma">, </span><a href="/tags/legislator">legislator</a><span class="pur_comma">, </span><a href="/tags/technology">Technology</a><span class="pur_comma">, </span><a href="/tags/regulation">Regulation</a><span class="pur_comma">, </span><a href="/tags/wind">Wind</a><span class="pur_comma">, </span><a href="/tags/solar">Solar</a><span class="pur_comma">, </span><a href="/tags/distributed">distributed</a><span class="pur_comma">, </span><a href="/tags/dg">DG</a><span class="pur_comma">, </span><a href="/tags/demand-side">Demand-side</a><span class="pur_comma">, </span><a href="/tags/natural-gas">Natural gas</a><span class="pur_comma">, </span><a href="/tags/doug-scott">Doug Scott</a><span class="pur_comma">, </span><a href="/tags/illinois">Illinois</a><span class="pur_comma">, </span><a href="/tags/beverly-jones-heydinger">Beverly Jones Heydinger</a><span class="pur_comma">, </span><a href="/tags/minnesota">Minnesota</a><span class="pur_comma">, </span><a href="/tags/paul-kjellander">Paul Kjellander</a><span class="pur_comma">, </span><a href="/tags/idaho">Idaho</a><span class="pur_comma">, </span><a href="/tags/integrated-resource-planning">Integrated resource planning</a><span class="pur_comma">, </span><a href="/tags/irp">IRP</a><span class="pur_comma">, </span><a href="/tags/fracking">fracking</a><span class="pur_comma">, </span><a href="/tags/environmental-protection-agency">Environmental Protection Agency</a><span class="pur_comma">, </span><a href="/tags/epa">EPA</a><span class="pur_comma">, </span><a href="/tags/clean-air-act">Clean Air Act</a><span class="pur_comma">, </span><a href="/tags/coal-fired">Coal-fired</a><span class="pur_comma">, </span><a href="/tags/net-metering">Net metering</a><span class="pur_comma">, </span><a href="/tags/hydro">Hydro</a><span class="pur_comma">, </span><a href="/tags/renewable-portfolio-standard">Renewable portfolio standard</a><span class="pur_comma">, </span><a href="/tags/rps">RPS</a><span class="pur_comma">, </span><a href="/tags/purpa">PURPA</a><span class="pur_comma">, </span><a href="/tags/ferc">FERC</a><span class="pur_comma">, </span><a href="/tags/qf">QF</a><span class="pur_comma">, </span><a href="/tags/rocky-mountain-power">Rocky Mountain Power</a><span class="pur_comma">, </span><a href="/tags/transmission">Transmission</a><span class="pur_comma">, </span><a href="/tags/environmental">Environmental</a><span class="pur_comma">, </span><a href="/tags/pipeline">pipeline</a><span class="pur_comma">, </span><a href="/tags/modernization-0">modernization</a><span class="pur_comma">, </span><a href="/tags/eima">EIMA</a><span class="pur_comma">, </span><a href="/tags/return-equity">Return on equity</a><span class="pur_comma">, </span><a href="/tags/roe">ROE</a><span class="pur_comma">, </span><a href="/tags/demand">Demand</a><span class="pur_comma">, </span><a href="/tags/efficiency">efficiency</a><span class="pur_comma">, </span><a href="/tags/renewable">Renewable</a><span class="pur_comma">, </span><a href="/tags/value-solar">value-of-solar</a><span class="pur_comma">, </span><a href="/tags/decoupling">decoupling</a><span class="pur_comma">, </span><a href="/tags/rider">rider</a><span class="pur_comma">, </span><a href="/tags/pre-apprival">pre-apprival</a><span class="pur_comma">, </span><a href="/tags/multi-year">multi-year</a><span class="pur_comma">, </span><a href="/tags/performance-based">performance-based</a><span class="pur_comma">, </span><a href="/tags/power-cost-adjustment">power cost adjustment</a><span class="pur_comma">, </span><a href="/tags/pca">PCA</a><span class="pur_comma">, </span><a href="/tags/avista">Avista</a><span class="pur_comma">, </span><a href="/tags/rocky-mountain">Rocky Mountain</a><span class="pur_comma">, </span><a href="/tags/ecam">ECAM</a><span class="pur_comma">, </span><a href="/tags/centerpoint">CenterPoint</a><span class="pur_comma">, </span><a href="/tags/regulatory-lag">Regulatory lag</a><span class="pur_comma">, </span><a href="/tags/xcel">Xcel</a><span class="pur_comma">, </span><a href="/tags/step-0">step-in</a><span class="pur_comma">, </span><a href="/tags/hurricane-sandy">Hurricane Sandy</a><span class="pur_comma">, </span><a href="/tags/microgrid">Microgrid</a><span class="pur_comma">, </span><a href="/tags/worthington">Worthington</a><span class="pur_comma">, </span><a href="/tags/distributed-generation">Distributed generation</a><span class="pur_comma">, </span><a href="/tags/miso">MISO</a><span class="pur_comma">, </span><a href="/tags/peoples-gas">Peoples Gas</a><span class="pur_comma">, </span><a href="/tags/ameren">Ameren</a><span class="pur_comma">, </span><a href="/tags/comed">ComEd</a><span class="pur_comma">, </span><a href="/tags/modernization">Modernization</a><span class="pur_comma">, </span><a href="/tags/alternative">alternative</a><span class="pur_comma">, </span><a href="/tags/retail">Retail</a><span class="pur_comma">, </span><a href="/tags/ares">ARES</a><span class="pur_comma">, </span><a href="/tags/safety">safety</a><span class="pur_comma">, </span><a href="/tags/capx2020">CAPX2020</a><span class="pur_comma">, </span><a href="/tags/columbia">Columbia</a><span class="pur_comma">, </span><a href="/tags/wecc">WECC</a><span class="pur_comma">, </span><a href="/tags/oms">OMS</a><span class="pur_comma">, </span><a href="/tags/rto">RTO</a><span class="pur_comma">, </span><a href="/tags/pjm">PJM</a><span class="pur_comma">, </span><a href="/tags/opsi">OPSI</a><span class="pur_comma">, </span><a href="/tags/otter-tail">Otter Tail</a><span class="pur_comma">, </span><a href="/tags/shale">Shale</a><span class="pur_comma">, </span><a href="/tags/monticello">Monticello</a><span class="pur_comma">, </span><a href="/tags/prairie-island">Prairie Island</a><span class="pur_comma">, </span><a href="/tags/langley">Langley</a><span class="pur_comma">, </span><a href="/tags/transportation">transportation</a><span class="pur_comma">, </span><a href="/tags/charging">charging</a><span class="pur_comma">, </span><a href="/tags/cng">CNG</a><span class="pur_comma">, </span><a href="/tags/dakota">Dakota</a><span class="pur_comma">, </span><a href="/tags/cybersecurity">cybersecurity</a> </div>
</div>
Sun, 03 Nov 2013 01:42:44 +0000meacott16880 at http://www.fortnightly.comThe Old Drawing Boardhttp://www.fortnightly.com/fortnightly/2012/11/old-drawing-board
<div class="field field-name-field-import-deck field-type-text-long field-label-inline clearfix"><div class="field-label">Deck:&nbsp;</div><div class="field-items"><div class="field-item even"><p>Portfolio planning in the age of gas.</p>
</div></div></div><div class="field field-name-field-import-byline field-type-text-long field-label-inline clearfix"><div class="field-label">Byline:&nbsp;</div><div class="field-items"><div class="field-item even"><p>Michael T. Burr, Editor-in-Chief</p>
</div></div></div><div class="field field-name-field-import-category field-type-text field-label-inline clearfix"><div class="field-label">Category:&nbsp;</div><div class="field-items"><div class="field-item even">Frontlines</div></div></div><div class="field field-name-field-import-bio field-type-text-long field-label-inline clearfix"><div class="field-label">Author Bio:&nbsp;</div><div class="field-items"><div class="field-item even"><p>Michael T. Burr is Fortnightly’s editor-in-chief. Email him at <a href="mailto:burr@pur.com">burr@pur.com</a></p>
</div></div></div><div class="field field-name-field-import-volume field-type-node-reference field-label-inline clearfix"><div class="field-label">Magazine Volume:&nbsp;</div><div class="field-items"><div class="field-item even">Fortnightly Magazine - November 2012</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p>One of the hardest jobs in the world is the state utility commissioner’s.</p>
<p>In one of my first Frontlines columns as <i>Fortnightly’s</i> editor, I focused on the regulator’s job <i>(“<a href="http://www.fortnightly.com/fortnightly/2007/11/creating-perfect-regulator">Creating the Perfect Regulator</a>,” November 2007)</i>. I proposed that the defining characteristics of the perfect regulator included omniscience, Solomonic wisdom, clairvoyance, and absolute righteousness.</p>
<p>Of course no mortal possesses those characteristics. No regulator can fully comprehend every single nuance shaping the future of electric and gas utility services, much less plan for every eventuality. But in some sense, PUCs in many states are expected to do just that—not alone, of course, but in collaboration with utilities, legislators, and stakeholder groups.</p>
<p>To bring greater clarity to utility planning and development, many states embarked on integrated resource planning (IRP) back in the 1980s. More than half of U.S. states pursued some form of IRP, most in response to two momentous events. First, the energy crisis of the 1970s turned the spotlight on oil as a risky fuel source. And second, the Three Mile Island accident raised safety concerns, and brought the decline of nuclear construction—plus billions of dollars in ratepayer-funded cost overruns. Both events highlighted the risks of over-reliance on any given energy resource, and drove regulators to intervene more directly in utility planning.</p>
<p>Many of these same forces are prompting states to consider whether today’s planning processes are up to the task. Except this time it’s not nuclear and oil raising worries; it’s coal and gas, along with a host of other uncertainties. The industry is, without question, more complicated today than it was in the 1980s—with organized regional markets creating a virtual third layer of grid regulation, sandwiched between FERC’s oversight and the states’ review; and with the crazy quilt of regulation even further complicated by demand-side initiatives and constantly shifting incentives and environmental rules. State regulators understandably might react to federal folderol by updating, refining, and strengthening the planning processes within their domain.</p>
<h4>Back to the Future</h4>
<p>As a regulatory phenomenon, IRP had its heyday in the 1980s and 1990s. Since then, the states that wanted to intervene in top-level planning either made it part of their general regulatory structure, or they tried it and gave it up for one reason or another.</p>
<p>In Missouri, for example, the Public Service Commission first enacted IRP rules in 1993, but later suspended them, in part because competitive wholesale markets seemed to obviate the need for top-down planning. Instead the commission conferred with utilities to ensure near-term resource adequacy, and left market forces to take care of the rest. In 2009, however, the commission picked up the IRP baton again, when it saw major changes in terms of customer load, demand-side resource capabilities, and environmental mandates. The PSC adopted new IRP rules in 2011 to set minimum standards for utilities’ resource planning processes. <i>(See <a href="http://www.sos.mo.gov/adrules/csr/current/4csr/4c240-22.pdf" target="_blank">Missouri code, 4 CSR 240-22</a>, May 31, 2011)</i>.</p>
<p>Arizona, similarly, put its IRP rules on hiatus in 1995. Then in 2005 the Arizona Corporation Commission (ACC) opened resource planning hearings in a rate case involving Arizona Public Service, and two years later conducted hearings related to energy procurement practices by utilities. Those hearings led the commission to reinstate its IRP rule in 2010—with substantive amendments, including requirements for utilities to consider a longer planning horizon (15 years instead of 10); incorporate demand-side and renewable resources in their plans; consider environmental factors; and demonstrate compliance with best procurement practices. <i>(See <a href="http://images.edocket.azcc.gov/docketpdf/0000112475.pdf" target="_blank">Dkt. No. RE-00000A-09-0249</a>, June 3, 2010). </i></p>
<p>In some other states, IRP processes have remained in effect, but now are being substantially updated or applied more rigorously. In one example, the Indiana Utility Regulatory Commission (IURC) is working to give the state’s IRP more teeth, requiring greater transparency and stakeholder input, consideration of demand-side programs, and perhaps most importantly, a provision that would mandate IURC’s formal determination that utilities’ plans are in compliance.</p>
<p>At least one state is implementing IRP for the first time. After five years of hearings, the Louisiana PSC earlier this year ordered all utilities in the state to file integrated resource plans, requiring evaluation of both supply and demand-side resources, plus transparency and stakeholder participation. The commission stresses that the IRP rules don’t “mandate a specific outcome,” but that the PSC will consider a utility’s IRP when determining prudence of investments in rate cases. <i>(See LPSC Dkt. No. R-30021, Corrected General Order, March 21, 2012, See LPSC Dkt. No. R-30021, Corrected General Order, March 21, 2012).</i></p>
<h4>Sharper Tools</h4>
<p>These examples—and others on various PUC dockets—share at least one common thread, and that’s uncertainty about whether affordable supply resources will be available over the long-term. PUCs are concerned that a rapid shutdown of coal-fired plants will start a full-tilt dash to gas—similar to the one that caused bankruptcies among independent power producers in the late 1990s and early 2000s. But this time around, ratepayers and not IPP investors will be stuck with the risk, if utilities rush to add all that new gas-fired capacity to rate base. <i>(See “<a href="http://www.fortnightly.com/fortnightly/2012/11/bill-hogan-unbundled">Bill Hogan, Unbundled</a>.”)</i></p>
<p>Further, state regulators seem less than 100-percent confident about wholesale markets’ ability to deliver resource adequacy without some planning by load-serving entities. As utilities spend billions of dollars on transmission lines—many of which will help generators access bigger markets—regulators are increasingly troubled about their limited role in interstate projects, which raise monthly bills for retail customers without necessarily producing bona fide resource security for those same customers.</p>
<p>At press time, the Midwest Independent Transmission System Operator (MISO) submitted to FERC its proposed changes to the MISO transmission owners’ agreement, giving state regulators a bigger seat at the planning table. Whether such moves will resolve state concerns about grid planning remains uncertain. Some states might decide to tweak their IRP rules to focus more attention on transmission plans and their rate effects—particularly given the changes wrought by FERC Order 1000, vis-à-vis cost-allocation methodologies and eliminating rights of first refusal.</p>
<p>What seems certain, however, is that resource planning isn’t getting any easier, and state regulators want to be sure that utilities’ plans are both financially prudent and consistent with state policy priorities—no matter what’s happening at federal and regional levels.</p>
<p>“With all these varying factors moving around and the states playing a major role in every one, I wouldn’t be surprised to see more emphasis on IRP,” says Sheila Hollis, a partner with Duane Morris who spoke to <i>Fortnightly</i> for this issue’s cover story <i>(See “<a href="http://www.fortnightly.com/fortnightly/2012/11/federal-feud">Federal Feud</a>.”).</i> “This is particularly true if political winds shift. So much about utility planning is politically driven, and there are so many layers of decision making.”</p>
<p>Sorting through such layers of complexity has never been easy. But in many states, IRP has given regulators a tool for checking utilities’ work and holding them accountable. It makes sense that some states now are refining that tool to accommodate today’s realities. That’s good news for regulators struggling to do the world’s toughest job.</p>
</div></div></div><div class="field field-name-field-article-category field-type-taxonomy-term-reference field-label-above clearfix"><h3 class="field-label">Category (Actual): </h3><ul class="links"><li class="taxonomy-term-reference-0"><a href="/article-categories/rate-cases">Rate Cases</a></li><li class="taxonomy-term-reference-1"><a href="/article-categories/natural-gas">Natural Gas</a></li><li class="taxonomy-term-reference-2"><a href="/article-categories/strategy-planning">Strategy &amp; Planning</a></li></ul></div><div class="field field-name-field-members-only field-type-list-boolean field-label-above"><div class="field-label">Viewable to All?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-article-featured field-type-list-boolean field-label-above"><div class="field-label">Is Featured?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-department field-type-taxonomy-term-reference field-label-above clearfix"><h3 class="field-label">Department: </h3><ul class="links"><li class="taxonomy-term-reference-0"><a href="/department/frontlines">Frontlines</a></li></ul></div><div class="field field-name-field-image-picture field-type-image field-label-above"><div class="field-label">Image Picture:&nbsp;</div><div class="field-items"><div class="field-item even"><img src="http://www.fortnightly.com/sites/default/files/1211-FR.jpg" width="800" height="533" alt="" /></div></div></div><div class="field field-name-field-fortnightly-40 field-type-list-boolean field-label-above"><div class="field-label">Is Fortnightly 40?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-law-lawyers field-type-list-boolean field-label-above"><div class="field-label">Is Law &amp; Lawyers:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-above clearfix">
<div class="field-label">Tags:&nbsp;</div>
<div class="field-items">
<a href="/tags/public-utility-commissioner">public utility commissioner</a><span class="pur_comma">, </span><a href="/tags/regulator">regulator</a><span class="pur_comma">, </span><a href="/tags/puc">PUC</a><span class="pur_comma">, </span><a href="/tags/cost-recovery">Cost recovery</a><span class="pur_comma">, </span><a href="/tags/rate-case">rate case</a><span class="pur_comma">, </span><a href="/tags/integrated-resource-planning">Integrated resource planning</a><span class="pur_comma">, </span><a href="/tags/irp">IRP</a><span class="pur_comma">, </span><a href="/tags/three-mile-island">Three Mile Island</a><span class="pur_comma">, </span><a href="/tags/nuclear">Nuclear</a><span class="pur_comma">, </span><a href="/tags/regional-markets">regional markets</a><span class="pur_comma">, </span><a href="/tags/grid-regulation">grid regulation</a><span class="pur_comma">, </span><a href="/tags/resource-adequacy">resource adequacy</a><span class="pur_comma">, </span><a href="/tags/demand-side">Demand-side</a><span class="pur_comma">, </span><a href="/tags/missouri">Missouri</a><span class="pur_comma">, </span><a href="/tags/arizona">Arizona</a><span class="pur_comma">, </span><a href="/tags/acc">ACC</a><span class="pur_comma">, </span><a href="/tags/indiana">Indiana</a><span class="pur_comma">, </span><a href="/tags/iurc">IURC</a><span class="pur_comma">, </span><a href="/tags/louisiana">Louisiana</a><span class="pur_comma">, </span><a href="/tags/coal">coal</a><span class="pur_comma">, </span><a href="/tags/gas">GAS</a><span class="pur_comma">, </span><a href="/tags/ipp">IPP</a><span class="pur_comma">, </span><a href="/tags/midwest-independent-transmission-system-operator">Midwest Independent Transmission System Operator</a><span class="pur_comma">, </span><a href="/tags/miso">MISO</a><span class="pur_comma">, </span><a href="/tags/ferc">FERC</a><span class="pur_comma">, </span><a href="/tags/order-1000">Order 1000</a><span class="pur_comma">, </span><a href="/tags/hollis">Hollis</a><span class="pur_comma">, </span><a href="/tags/duane-morris">Duane Morris</a> </div>
</div>
Tue, 13 Nov 2012 17:49:39 +0000puradmin16341 at http://www.fortnightly.com